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Universidade do Minho

Escola de Economia e Gestão

Tese de DoutoramentoDoutoramento em Contabilidade

Marta Alexandra Silva Guerreiro

Junho de 2011

Essays on the Institutionalisation of a New Accounting Regime for Unlisted Companiesin Portugal

Universidade do Minho

Escola de Economia e Gestão

Trabalho realizado sob a orientação daProfessora Doutora Lúcia Lima Rodriguese doProfessor Doutor Russell Craig

iii

ACKNOWLEDGMENTS

My first words are of profound gratitude to my supervisors, Professor Lúcia Lima

Rodrigues and Professor Russell Craig. Their knowledge, friendship, and most of all

their absolute support, has helped me to complete this challenging dissertation. I am

deeply thankful for the enlightening discussions we have shared during this journey.

This work has also benefited from the support of several other persons and

institutions. I want to express my gratitude to the Polytechnic Institute of Viana do

Castelo (IPVC), for providing me with the work conditions that have allowed me to

complete this dissertation; and to the PROTEC Program for its financial support. I thank

to University of Minho, for accepting me as a Ph.D student.

I am also particularly grateful to the 16 persons I interviewed and to the

respondents of the questionnaires. Their kind collaboration and contribution of precious

time helped me gain many invaluable insights.

An earlier version of the third essay has also benefited from the comments of

participants at the 34th Annual Congress of the European Accounting Association,

Rome, April, 2011, to whom I acknowledge.

I also thank my friends and colleagues from the Department of Economics and

Entrepreneurial Sciences of the Superior School of Technology and Management of

IPVC, in particular Isabel Barbosa and Susana Oliveira, for their support and

encouragement.

I wish to express my gratitude to my friends and family for their unyielding faith

in my work. Mãe e pai, vocês são uma fonte de inspiração para mim. Thank you Daniel

for your love, friendship and for giving me the most important part of my life, our son,

Artur.

June 2011

Marta Guerreiro

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v

Essays on the Institutionalisation of a New Accounting Regime

for Unlisted Companies in Portugal

ABSTRACT

The diffusion of International Financial Reporting Standards [IFRS] among nation

states and organisations has been the subject of much debate in the accounting literature.

One of the main issues is whether the institutionalisation process can overcome local

specificities and needs, and become embedded in organizational structures and

practices. This thesis adopts Institutional theory, specifically New Institutionalism, to

study the adoption and institutionalisation of IFRS and adapted IFRS in Portugal. For

this purpose, four essays are presented.

The first essay establishes the theoretical research framework used in the

following essays. It also proposes some avenues of research regarding the application of

institutional theory to study the international accounting harmonisation process.

The second essay draws upon the institutional change model of Dillard et al.

(2004) to analyse the introduction of the Sistema de Normalização Contabilística [SNC]

in Portugal, in 2010. Based on data collected in interviews and from archival sources,

the essay reveals that the cascading institutionalisation process can invert at an earlier

stage than portrayed by Dillard et al. (2004). However, if the institutionalisation of the

new accounting system is to be successful, the interests and needs of the main actors

have to be accommodated in the process of accounting change.

The third essay identifies institutional factors associated with preparedness of

large Portuguese unlisted companies to implement the SNC. Results of a questionnaire

survey of 116 companies reveal that important insights can be obtained by studying

isomorphic influences in conjunction with the concepts of resistance and institutional

logic. Coercive and mimetic institutional factors are found to influence levels of

preparedness positively. However, resistance to change by the Portuguese accounting

profession and the embeddedness of code-law practices in the prevailing logic are

revealed to have undermined the progress of the preparedness process.

The fourth essay relies on the institutional framework proposed by Oliver (1991),

to examine reasons for the voluntary adoption of IFRS by large Portuguese unlisted

companies. Empirical evidence drawn from 158 questionnaire responses supports the

view that acquiescence is not a blind response to institutional demands. Rather,

voluntary adoption of IFRS is a strategic organizational response that results from

companies promoting their self-interests and choosing the pressures to which they are

willing to acquiesce.

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Ensaios sobre a Institucionalização de um Novo Regime Contabilístico para

as Empresas não Cotadas em Portugal

RESUMO

A difusão das International Financial Reporting Standards [IFRS] entre os países

e organizações tem sido um tema muito debatido na literatura de contabilidade. Uma

das questões abordadas consiste em investigar se a institucionalização das IFRS

consegue ultrapassar as especificidades locais, e se estas se internalizam nas estruturas e

práticas organizacionais. Esta tese adopta a Teoria Institucional, mais especificamente o

Novo Institucionalismo, no estudo da adopção e institucionalização das IFRS e das

IFRS ajustadas a Portugal. Para esta finalidade, são apresentados quatro ensaios.

O primeiro ensaio estabelece o enquadramento teórico utilizado nos ensaios

seguintes. Este ensaio propõe ainda algumas pistas de investigação relacionadas com a

aplicação da teoria institucional no estudo da harmonização contabilística internacional.

O segundo ensaio aplica o modelo de mudança institucional proposto por Dillard

et al. (2004) na análise da introdução do Sistema de Normalização Contabilística [SNC]

em Portugal, em 2010. Utilizando dados recolhidos em entrevistas e através de fontes

documentais, este ensaio revela que o processo de institucionalização em cascata pode

inverter-se numa fase anterior à prevista por Dillard et al. (2004). Contudo, para que a

institucionalização do novo sistema contabilístico tenha sucesso, os interesses e

necessidades dos principais actores devem ser acomodados no processo de mudança.

O terceiro ensaio identifica os factores institucionais relacionados com a

preparação das grandes empresas Portuguesas não cotadas para implementar o SNC. Os

resultados de um inquérito por questionário realizado a 116 empresas revelam que

conhecimentos mais profundos podem resultar de se complementar o estudo das

pressões isomórficas com conceitos de resistência e lógica institucional. Factores

coercivos e miméticos influenciaram a preparação positivamente. Todavia, a resistência

à mudança por parte da profissão contabilística e as práticas legalistas prevalecentes

prejudicaram o progresso do processo de preparação.

O quarto ensaio baseia-se no modelo institucional proposto por Oliver (1991),

para analisar os motivos da adopção voluntária das IFRS pelas grandes empresas

Portuguesas não cotadas. Os resultados de 158 respostas a um questionário revelam que

a aquiescência das empresas não é uma resposta cega às pressões institucionais. Pelo

contrário, a adopção voluntária das IFRS é uma resposta estratégica na qual as empresas

promovem os seus interesses e escolhem as pressões institucionais às quais respondem.

viii

ix

TABLE OF CONTENTS

ACKNOWLEDGMENTS ............................................................................................. iii

ABSTRACT ..................................................................................................................... v

RESUMO ....................................................................................................................... vii

TABLE OF CONTENTS .............................................................................................. ix

ABBREVIATIONS ...................................................................................................... xiii

LIST OF TABLES, FIGURES AND GRAPHS ......................................................... xv

INTRODUCTION .......................................................................................................... 1

Context and Motivation .............................................................................................. 3

Purpose and Research Questions .............................................................................. 7

Research Method ........................................................................................................ 8

Qualitative Research ................................................................................................ 8

Quantitative Research ............................................................................................ 10

Expected Contributions ............................................................................................ 13

Structure .................................................................................................................... 14

ESSAY 1

Institutional Theory and the Process of Convergence to IFRS: A Literature Review

........................................................................................................................................ 17

1. Introduction ........................................................................................................... 19

2. Institutional Theory Review ................................................................................ 20

2.1 Fundamentals of Institutional Theory ............................................................ 20

2.2 Overcoming the Major Criticisms of Institutional Theory ............................. 26

2.2.1 Opposition between technical and institutional environments .................. 26

2.2.2 Overreliance of institutional theory on mimesis ........................................ 27

2.2.3 The scarce attention given to institutional dynamics ................................. 29

3. Accounting Research Applying Institutional Theory ........................................ 31

3.1 Contemporary Accounting Research .............................................................. 31

3.2 International Accounting Harmonisation Research ...................................... 34

x

4. Research Avenues to the Study of Accounting Harmonisation Applying

Institutional Theory ............................................................................................ 35

4.1 Adopted in the Thesis ....................................................................................... 35

4.2 Further Research ............................................................................................. 37

5. Conclusions ............................................................................................................ 39

ESSAY 2

Institutional Analysis of a New Accounting Regime: Implications for Portuguese

SMEs of Adoption of International Financial Reporting Standards Adapted ....... 41

1. Introduction ........................................................................................................... 43

2. Theoretical Framework ........................................................................................ 45

3. The Portuguese Accounting System .................................................................... 50

4. Research Methods ................................................................................................. 53

5. Results .................................................................................................................... 56

5.1 Economic and Political Level .......................................................................... 56

5.1.1 Changes in signification, legitimation and domination structures ............ 56

5.1.2 Isomorphic pressures ................................................................................. 60

5.2 Organisational Field Level .............................................................................. 63

5.2.1 Changes in signification, legitimation and domination structures ............ 63

5.2.2 Isomorphic pressures ................................................................................. 67

5.3 Organisational Level ........................................................................................ 68

5.3.1 Changes in signification, legitimation and domination structures ............ 68

5.3.2 Isomorphic pressures ................................................................................. 73

6. Conclusions ............................................................................................................ 74

ESSAY 3

Factors Influencing the Preparedness of Large Portuguese Unlisted Companies to

Implement Adapted International Financial Reporting Standards in Portugal .... 79

1. Introduction ........................................................................................................... 81

2. Analytical Perspectives from New Institutional Theory ................................... 84

3. Hypotheses ............................................................................................................. 88

3.1 Coercive Pressures ........................................................................................... 88

3.1.1 Parent company dependence ..................................................................... 88

3.1.2 National ownership .................................................................................... 89

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3.2 Normative Pressures ........................................................................................ 90

3.2.1 Membership of professional accounting associations ............................... 90

3.2.2 Auditor type ................................................................................................ 91

3.3 Mimetic Pressures ............................................................................................ 91

3.3.1 Consultancy services .................................................................................. 92

3.3.2 Export activities ......................................................................................... 92

4. Method ................................................................................................................... 93

5. Empirical Model ................................................................................................... 94

5.1 Dependent Variable: Degree of Preparedness of Large Portuguese

Unlisted Companies ....................................................................................... 94

5.2 Independent Variables and Control Variables ............................................... 98

6. Results .................................................................................................................... 99

6.1 Descriptive Statistics ........................................................................................ 99

6.2 Bivariate Analysis and Multivariate Analysis ............................................... 100

7. Discussion and Conclusions ............................................................................... 103

ESSAY 4

Voluntary Adoption of International Financial Reporting Standards by Large

Portuguese Unlisted Companies - An Institutional Strategic Response? .............. 109

1. Introduction ......................................................................................................... 111

2. Theoretical Background ..................................................................................... 114

3. The Relationship between Institutional Pressures and Strategic Responses 117

3.1 Cause .............................................................................................................. 118

3.2 Constituents .................................................................................................... 119

3.3 Content ........................................................................................................... 120

3.4 Control ............................................................................................................ 121

3.5 Context ............................................................................................................ 122

4. Method ................................................................................................................. 123

4.1 Sample ............................................................................................................ 123

4.2 Measurement of Variables ............................................................................. 124

4.2.1 Cause ....................................................................................................... 125

4.2.2 Constituents ............................................................................................. 125

4.2.3 Content ..................................................................................................... 126

4.2.4 Control ..................................................................................................... 126

4.2.5 Context ..................................................................................................... 126

xii

5. Results .................................................................................................................. 129

5.1 Descriptive Statistics and Univariate Results ................................................ 129

5.2 Logit Regression ............................................................................................. 130

6. Discussion and Conclusions ............................................................................... 132

CONCLUDING REMARKS ..................................................................................... 137

APPENDICES ............................................................................................................. 145

Appendix A: Script of the Interview with the President of the CNC and two

Members of the Executive Commission ....................................... 147

Appendix B: Script of the Interview with the President of the Executive

Commission of the CNC and with other Member of the

Executive Commission ................................................................... 149

Appendix C: Script of the Interview with the Representative of the CNC on

the ARC of the European Commission ........................................ 151

Appendix D: Script of the Interview with the President of OTOC .................... 153

Appendix E: Script of the Interviews with Accountants ..................................... 155

Appendix F: Universe of the 500 Largest Portuguese Unlisted Companies

(published in the management magazine, Exame, in 2008) ........ 157

Appendix G: Questionnaire ................................................................................... 165

Appendix H: Cover letter ....................................................................................... 167

REFERENCES ............................................................................................................ 179

xiii

ABBREVIATIONS

APOTEC Associação Portuguesa de Técnicos de Contabilidade (Portuguese

Association of Accountants)

ARC Accounting Regulatory Committee

CMVM Comissão do Mercado dos Valores Mobiliários (Securities Market

Commission)

CNC Comissão de Normalização Contabilística (Accounting Standards

Board)

EU European Union

GAAP Generally Accepted Accounting Principles

IASB International Accounting Standards Board

IFAC International Federation of Accountants

IFRS International Financial Reporting Standards

IOSCO International Organization of Securities Commissions

OROC Ordem dos Revisores Oficiais de Contas (Order of Official Auditors)

OTOC Ordem dos Técnicos Oficiais de Contas (Order of Official Accountants)

POC Plano Oficial de Contabilidade (Official Accounting Plan)

NCRF Norma Contabilística de Relato Financeiro (Financial Reporting

Accounting Standard)

NCRF-PE Norma Contabilística de Relato Financeiro – Pequenas Empresas

(Financial Reporting Accounting Standard – Small Entities)

SEC Securities and Exchange Commission

SME Small and Medium-sized Entities

SNC Sistema de Normalização Contabilística (Accounting Standardisation

System)

US United States

xiv

xv

LIST OF TABLES, FIGURES AND GRAPHS

Table 2.1 Identification of Interviewees 55

Table 3.1 Assessment and Conversion Procedures in the Composite Measure 95

Table 3.2 Degree of Preparedness of Large Portuguese Unlisted Companies 97

Table 3.3 Descriptive Statistics of Independent and Control Variables 99

Table 3.4 Correlation Matrix for the Dependent, Independent and Control

Variables 101

Table 3.5 Regression Results 102

Table 4.1 Institutional Antecedents and Predicted Strategic Responses 117

Table 4.2 Descriptive Statistics and Univariate Tests 129

Table 4.3 Logit Regression Results 131

Figure 3.1 Preparedness Model 96

Figure 4.1 Continuum of Possible Responses to Institutional Pressures 116

Graph 3.1 Histogram of the Degree of Preparedness of Large Portuguese

Unlisted Companies 97

xvi

1

INTRODUCTION

2

3

Context and Motivation

During the last decade, International Financial Reporting Standards [IFRS] issued

by the International Accounting Standards Board [IASB] have gained considerable

acceptance around the world. IFRS are now mandatory for listed companies in the

European Union [EU] member-states, Brazil, Turkey, South Africa and through most of

the world, including Australia and Canada. In January 2005, IFRS were implemented in

the EU, with more than 8,000 listed companies in EU member countries required to

adopt these standards in preparing their consolidated financial statements. Currently,

China and the United States [US] are engaged in projects intended to lead to

convergence with IFRS.1 The US Securities and Exchange Commission [SEC] has also

given strong endorsement to IFRS by allowing foreign private companies to adopt IFRS

in their financial statements. Even before IFRS became mandatory, many firms around

the world had adopted IFRS voluntarily. Such context demonstrates that this regime of

standards is rapidly emerging as a globally accepted accounting framework.

In the EU, the move to adopt of IFRS was motivated by the objective of creating

an internal market with free movement of financial resources and people. Though the

Fourth Directive (issued in 1978) and the Seventh Directive (issued in 1983) made

important changes towards harmonisation of accounting regulation of member-states,

ensuing harmonisation effects were small and related more to matters of form than

matters of substance (Emenyonu & Gray, 1992; Haller & Kepler, 2002; Joos & Lang,

1994; van der Tas, 1992). Accordingly, the European Commission has acknowledged

accounting directives were insufficient in ensuring the high levels of comparability and

transparency that were needed to build an efficient and integrated capital market. This

placed EU securities markets at a severe disadvantage globally (European Commission,

2002). As a result, since 1995, the EU has improved its relationship with the IASB. This

culminated in Regulation 1606/2002 that imposed IFRS on consolidated financial

statements of publicly traded companies, effective 1 January, 2005. This Regulation

leaves each country to consider any additional scope for this obligation. Member-states

have taken different options in doing so – some have decided to permit the use of IFRS

1 See www.iasplus.com (accessed June 2011).

4

in all annual accounts, others have decided to permit the use of IFRS only in the annual

accounts of listed companies, and others have allowed the use of IFRS in all

consolidated accounts.2

In line with this emerging global and regional trend, the Portuguese government

issued Decree-law 158/2009 (from 13 July), revoking Portugal’s Official Accounting

Plan [POC] and imposing a new accounting system, the Sistema de Normalização

Contabilística [SNC - Accounting Standardisation System], from 1 January 2010

onward. This new accounting system is inspired profoundly by the IASB model.

The growth and success of the IASB’s initiatives in issuing IFRS has been a result

of demands of capital markets and globalisation forces, rather than as a result of specific

governmental political initiatives (Whittington, 2005). Over the last century the

rationale of accounting has evolved towards utility of financial information and to a

principles-based approach. IASB standards have become the belief system underpinning

principles-based accounting (see the second essay). IFRS are designed to reveal

economic substance more than legal form, reflect economic gains and losses in a more

timely fashion, and restrict the discretion historically allowable to managers in

Continental European to manipulate provisions and create hidden reserves (Ball, 2006;

Jaruga et al., 2007). Thus, it is argued that financial information prepared in accordance

with IFRS is more relevant and comprehensive to investors (especially with respect to

disclosure) than most local accounting systems.

However, arguments about the benefits of adopting IFRS are not unanimous

among academic researchers (see Chua & Taylor, 2008). Capital-market effects of

mandatory IFRS adoption are not distributed evenly across countries or among firms

(Armstrong et al., 2010; Christensen et al., 2007; Daske et al., 2008). “The fundamental

reason for being sceptical about uniformity of implementation in practice is that the

incentives of preparers (managers) and enforcers (auditors, courts, regulators, boards,

block shareholders, politicians, analysts, rating agencies, the press) remain primarily

local” (Ball, 2006: 15). Worldwide efforts to achieve accounting harmonisation run

directly counter to environmental differences and countries’ idiosyncrasies (Salter &

Doupnik, 1992; Shultz & Lopez, 2001). Each accounting system is a product of its

unique cultural, political and economic history, and is embedded in its own beliefs 2 Information about the options taken by member-states is available at www.iasplus.com/europe/1007ias-use-of-options.pdf (accessed March 2011).

5

(Chand & Patel, 2008), influencing the way each country adopts and interprets IFRS.

Additionally, the complicated nature of IFRS, the different rules governing the

preparation of reports, and the tax-orientation of many national accounting systems are

significant barriers to effective convergence of accounting standards (Callao et al.,

2007; Larson & Street, 2004).

The complexity of the international accounting harmonisation process makes it a

prolific topic area for accounting research. The phenomenon has been analysed from

many different angles, including comparisons of international accounting practices, the

influence of external factors (e.g. cultural, economical, financial, and political) on

accounting practices, obstacles to global convergence, the advantages and disadvantages

of establishing international accounting standards, measurement of the extent of

international accounting harmonisation, and the effects of IFRS in different countries

(see Baker & Barbu, 2007).

Nonetheless, the likely consequences of IFRS adoption for firms, as well for a

society as a whole, are yet to be evaluated fully. In Portugal, very few studies have

analysed the adoption of IFRS. The studies conducted to date comprise an analysis of

the cost-benefit of the expected effects of Portuguese adoption of IFRS (Alves &

Moreira, 2009); an examination of the characteristics of Portuguese listed companies

that were better prepared to adopt IFRS in 2005 (Guerreiro et al., 2008); an assessment

of the relationship between the application of IFRS by listed companies and ensuing

corporate governance and firm performance (Major & Marques, 2009); and an

evaluation of whether IFRS adoption is associated with higher earnings quality and

higher value relevance (Morais & Curto, 2008).

A positivist perspective dominates these studies. For theoretical support they

usually resort to rational choice, contingency, agency or positive accounting theories.

Such perspectives see the environment as a concrete structure with organisations as

adapters and responders who are seeking to achieve efficiency; and with individuals

engaged constantly in calculating the cost and benefits of different choices, and

behaving in accord with such utility calculations (Hoque, 2006; Moll & Hoque, 2006).

Nonetheless, the appropriateness of adopting IFRS in particular domestic settings needs

to be better explained and understood, and to take account of the interactions between

6

organisations and the social, cultural and political environments in which adoption

occurs.

The Portuguese case is a very interesting social phenomenon from a research

perspective. The Portuguese accounting system is classified commonly as being in one

of a group of countries in which the accounting has a Continental European influence.

The structure of the Portuguese accounting system traditionally has been based on the

Roman Code, in which accounting is regulated in detail (Jarne Jarne, 1997; Mueller et

al., 1997; Nobes & Parker, 2004; Salter & Doupnik, 1992). Portuguese accounting is

influenced pronouncedly by tax law and possesses a strong legal tradition. The

preparation of financial statements is oriented primarily to the needs of banks and the

State. Given this background, the option taken by the Comissão de Normalização

Contabilística [CNC - Accounting Standards Board] of revoking the POC model

provides a good contemporaneous opportunity to understand how companies dealt with

the pressures of the environment and how accounting change evolved within the

Portuguese societal context.

This thesis aims to provide a holistic perspective of the relationship between

Portuguese organisations and IFRS/SNC. It analyses the institutionalisation process of

the SNC (a regime of adapted IFRS)3, and seeks to understand the behaviour of unlisted

companies in a mandatory context and in a voluntary context.

In this thesis institutional theory is used as a theoretical lens. Particularly, recourse

is made to the New Institutional Theory in Sociology (or New Institutionalism), that

was elaborated by Meyer and Rowan (1977), DiMaggio and Powell (1983) and Scott

(1987), among others. In recent years, institutional theory has been adopted increasingly

in the accounting literature to explain accounting choices, accounting regulation and the

inter-play between practices, institutions, power and politics (see the first essay).

Through the inclusion of institutional pressures and institutional dynamics, the interests

of organisations and the relative power of actors, institutional theory should render a

deeper understanding of the evolution of institutions and change processes in the

Portuguese accounting field. Additionally, institutional theory should provide useful

insights to the complexity of reactions and responses to the SNC/IFRS, and do so by

going well beyond economic and efficiency arguments. 3 “IFRS” is used to refer to the standards issued by the IASB. “Adapted IFRS” refers to contexts where a national accounting standards board has adapted IFRS to national contexts.

7

Purpose and Research Questions

This thesis comprises a two-phase study that addresses qualitative and quantitative

research questions. The first phase involves assessing the appropriateness of

institutional theory in explaining recent changes that have occurred in the regulation of

accounting in Portugal. This assessment is made by means of an analysis of the

institutional theory literature, with particular emphasis on studies that have applied this

theory to explore processes of accounting change and the diffusion of IFRS. Then, a

qualitative study of the institutionalisation process of the SNC is developed. This study

focuses on the context of small and medium-sized companies [SMEs].

The usefulness of institutional theory in the first stage prompts the development of

two quantitative studies in the second phase. These used institutional perspective to

understand the organisational behaviour of large Portuguese unlisted companies

regarding the adoption of SNC/IFRS. These studies focus on a different set of

companies than those in the first. This enlarges the scope of the thesis, thereby helping

to develop a comprehensive knowledge of the institutional factors associated with the

adoption of SNC/IFRS by Portuguese companies.

Given the research purposes, the key research questions are:

1. Is institutional theory a theoretical framework appropriate to study processes

of international accounting harmonisation and convergence of local standards

with IFRS?

1.1 Is adoption of IFRS or of adapted IFRS related profoundly to legitimacy

concerns, and a means for nation states and organisations to respond to

institutional pressures?

1.2 How can an institutional theory framework be used in this thesis and in

future research?

2. Does institutional theory explain the development of the SNC and the way it

was adopted by SMEs?

2.1 How has the institutionalisation process of the SNC evolved within the

Portuguese societal context?

8

2.2 How have the interests and the power of actors shaped institutional

dynamics and the institutionalisation process?

3. Does institutional theory explain the relationship between large Portuguese

unlisted companies and the SNC, within a context of mandatory adoption of

these standards?

3.1 Which institutional factors are related to the level of preparedness

exhibited by large Portuguese unlisted companies to adopt the SNC?

3.2 How can institutional theory explain the different levels of preparedness

to adopt the SNC exhibited by large Portuguese unlisted companies?

4. Does institutional theory explain the relationship between large Portuguese

unlisted companies and IFRS, within a context of voluntary adoption of these

standards?

4.1 Is the choice among different sets of accounting standards a strategic

response to the institutional pressures that affect companies?

4.2 What type of organisational response does the voluntary adoption of

IFRS by large Portuguese unlisted companies represent?

Research Method

Qualitative Research

In the second essay, semi-structured interviews are conducted with members of

the CNC, the representative of the CNC in the Accounting Regulatory Committee

[ARC] of the European Commission, the President of the official professional

accounting association, Ordem dos Técnicos Oficiais de Contas [OTOC], and four

accountants of SMEs. Factual data elicited from the interviews are corroborated by

triangulation with official documents, press articles, press conferences, official speeches

by members of the Portuguese government, and web sites of professional organisations,

political parties, Portuguese parliament and the EU.

9

Semi-structured interviews are appropriate where it is necessary to understand the

reasons for the decisions of participants, or the reasons for their opinions and attitudes

(Saunders et al., 2003). The interviews seek to attain an in-depth understanding of the

phenomenon in question. Individuals are selected for their particular characteristics and

because of their knowledge of the research purpose (Oppenheim, 2001). Interviews are

less structured than a questionnaire and are more exploratory. Qualitative interviews

need to be planned carefully. The sequence of questioning must consider the flow of the

interview and ensure consistency with the research questions. Interview interaction has

to generate relevant data. This means orchestrating the intellectual and the social

dynamics of the situation. The achievement of such qualities in the interviews

conducted should help to provide useful insights to the institutional processes affecting

the Portuguese accounting system. The research questions can be approached from a

different angle, with greater depth. This can be seen as a form of methodological

triangulation, as suggested by Mason (2002).

Consequently, the interviews cover the adoption of the Norma Contabilística de

Relato Financeiro – Pequenas Empresas [NCRF-PE - Financial Reporting Accounting

Standard – Small Entities], and are complemented with questionnaires that gather data

about the adoption of all Normas Contabilísticas de Relato Financeiro [NCRF-

Financial Reporting Accounting Standards] (in the second phase). The purpose is to

corroborate results (taking into consideration the different kinds of data produced for

each one). Therefore, this part of the study is qualitative in the sense that it provides a

complex and holistic description of the way accounting change took place in Portugal.

Additionally, accountants of small firms are not experienced in disclosing a large

amount of information about accounting procedures and accounting choices, contrary to

the practice in large firms. Usually the financial statements they prepare are intended to

serve tax or financing purposes. Accountants of small firms are reluctant to provide

information they feel is confidential because this is not usually disclosed. Mindful of

these restrictions, a small number of interviews were conducted to gather information

about the establishment and embedding of new accounting practices, and to explore the

deinstitutionalisation of old practices of small accounting firms.

There is also a concern regarding the generalisation of findings from a small

possibly unrepresentative number of interviews. The results of such interviews should

10

not be generalised. However, the aim is to analyse the findings of the study in relation

to the existing theoretical frame of reference. Accordingly, the purpose is to discuss

which general conclusions can be extracted from the specific research. When it is

possible to relate the research findings to theoretical propositions, such findings can be

demonstrated to have a broader significance than the cases that are the basis of the study

(Moll et al., 2006b). The relationship between the findings of the study and the existing

theory allows testing the theory’s applicability and theoretical propositions advanced

can be tested in another context. This is the main goal of this part of the empirical

analysis.

Quantitative Research

The second and third essays feature quantitative studies. The empirical data for

these studies is gathered through a questionnaire sent to the 500 largest Portuguese

companies (appendix F). The questionnaire was posted to respondents and returned by

them by post after completion (appendix G). Such surveys have several strengths. They

are ideal for large sample sizes, or when the sample comes from a wide geographic area.

They allow sampling to minimize error at relatively low cost (Salant & Dillman, 1994).

Another advantage is that most people are familiar with questionnaires, so generally,

they do not make people apprehensive. Questionnaires also reduce bias. The

presentation of questions to each individual is uniform, with no middle-person bias.

There are no verbal or visual signs to influence the respondent, therefore reducing

measurement error. A mail survey also provides a sense of privacy: it is a largely

anonymous vehicle for giving sensitive information. The respondent has ample

opportunity to complete the questionnaire at a time and place of his/her choosing.

Simultaneously, data analysis can be completed with the help of computer software

packages, thereby simplifying the processing (Gillham, 2002).

However, mail surveys have some weaknesses. Non-response error can be a

problem. Some people are less likely to respond to a questionnaire than others, often

influenced by their level of interest in the topic. Low response rates weaken the

confidence of statistical results. Another disadvantage is that there is no guarantee that

the questionnaire is completed by the person to whom the questionnaire was sent.

Researchers have little control over what happens to the questionnaire after it is mailed.

11

Finally, it is not possible to guarantee that mail questionnaires are filled out completely.

Item non-response error stems from respondents purposely skipping over difficult or

boring questions or inadvertently overlooking some items (Gillham, 2002; Salant &

Dillman, 1994).

The design of a mail questionnaire should encourage people to respond. Based on

Creswell (2009), Gillham (2002), Oppenheim (2001), Salant and Dillman (1994) and

Saunders et al. (2003), several rules were followed. The questionnaire was printed as a

booklet in order to give it a professional and appealing look. The front cover included

the title of the survey, the name of university and the contacts available. To enhance the

credibility of the research work, the logo of the researcher’s university affiliation

(University of Minho) was included on the front cover. The back cover had an invitation

to make comments, with a blank space provided for respondents.

A personalised covering letter was used (appendix H). This also included the logo

of the university. It was addressed to the company, and whenever possible, to the

finance director of the company. The covering letter explained the purpose of the

questionnaire, the general identities of other companies to whom it had been sent (the

500 largest Portuguese companies), the time expected to complete the questionnaire and

how participation would be greatly appreciated. To stimulate responses, the cover letter

mentioned that the main findings of the study would be sent to all respondents.

Additionally, more interesting and topic-related questions were placed at the

beginning of the questionnaire. Questions on the same subject were grouped together,

and questions with similar structures were grouped also. Questions were in dark type

and answers in light type. Brief instructions on how to answer the questions were given

where the information was needed. Multicolumn design was used to combine several

questions.

Before letters and questionnaires were dispatched, five pilot tests of the

questionnaire were conducted to verify the reliability and suitability of the questions.

The purpose of a pilot test is to improve the questionnaire so that respondents will have

fewer problems in answering the questions, and lead to fewer problems in recording

data (Saunders et al., 2003). Indeed, watching people fill out the questionnaire in the

pre-testing phase was helpful in improving several questions and led to a better final

version of the questionnaire.

12

The names of the companies surveyed were visible only on the envelopes and in

the cover letters. This provided a sense of confidentiality. On the first page of the

questionnaire, information about the confidentiality of responses was given, together

with an estimate of the time likely to be required to fill out the questionnaire. Although

this information was already in the cover letter, it was thought to be important to re-

state it on the first page of the questionnaire. This was because the person responsible

for completing the questionnaire might not be the person to whom it was posted – the

financial director.

The questionnaire had three main sections which could be completed by different

persons. The first section had questions primarily about the regime of accounting

standards in use prior to 2010, the accounting standards they intended to use from 2010

onwards, and the accounting procedures they were implementing in preparing

themselves to adopt the new accounting system in their individual accounts. This

section required that respondents to know the accounting procedures of the company

well.

The second section included questions about what companies expect to be the

consequences of adopting the SNC/IFRS in their business. This section had two main

goals: first, to analyse the attitude of the companies towards the SNC/IFRS (positive or

negative): that is, whether they recognised several advantages of adopting the

SNC/IFRS, or whether this adoption was imposed against their will; and second, to

identify business characteristics and the way companies are interconnected with their

organisational field. This section had to be completed by someone who knew the core

business of the company very well, the environment in which it operates, and the users

of their financial statements. Usually, the financial director was the person with this

knowledge.

The third section included more specific questions about companies and the

characteristics of respondents. These questions were important for response profiling.

The questionnaires were mailed on 15 September, 2009, accompanied by the

covering letter and a stamped return envelope. The covering letter mentioned 31

October, 2009 as the deadline for return.

13

The first follow-up was made three weeks later by e-mail. The second follow up

occurred a further three weeks later, by phone. Whenever it was not possible to talk to

the financial director, this follow-up was by an e-mail which attached a copy of the

questionnaire and a new covering letter. A third follow-up was made another three

weeks later, extending the deadline date until the end of November, 2009.

The computer software packages used for data analysis were the Statistical

Package for the Social Science (SPSS) 18, the LISREL 8.71 software, and EViews 6.

Expected Contributions

This thesis contributes to international accounting research in several ways. At a

theoretical level, the use of institutional theory provides further understanding of the

way organisations deal with IFRS and adapted IFRS. The first essay reveals how

institutional theory extends arguments grounded on efficiency and rationality that are

usually applied in understanding organisational behaviour in this area. The adoption of

IFRS is seen as related profoundly to legitimacy concerns and as a mean for nation

states and organisations to respond to institutional pressures. This is because IFRS

establish organisations as appropriate, rational and modern. The first essay reviews the

underpinnings of institutional theory, the evolution of institutional arguments over time,

and its prospects of development. This should provide future avenues of research in the

context of exploring local adoption of IFRS or adapted IFRS through institutional

lenses.

Additionally, each of the empirical studies is expected to make other related

theoretical contributions.

In the second essay, the institutional change model conceptualised by Dillard et

al. (2004) is applied to analyse the institutional dynamics in the Portuguese societal

context during the development and adoption of the SNC. Using this model in this

context provides an ideal scenario for investigating its applicability in the international

accounting field. The specificities of the context of national convergence with IFRS can

create an ideal setting to explore and improve the Dillard et al. (2004) model. In the

third essay, the study of isomorphic pressures on large Portuguese unlisted companies

14

for mandatory accounting change is complemented with the concepts of resistance and

institutional logic. In the fourth essay, Oliver’s (1991) framework is used, for the first

time, to explain the relationship between institutional pressures for voluntary adoption

of IFRS and strategic responses of large Portuguese companies.

At the empirical level, this thesis highlights the implications of the adoption of a

new accounting system based on IFRS by a nation state, Portugal. It explores the

institutional dynamics that flow from the Portuguese societal context down to the level

of the accounting organisational field and to the level of small accounting firms

involved in the adoption of the SNC. It also highlights the gradual transformation of

meanings and criteria across different levels of analysis and reveals how actions of

agents influence outcomes at each of the three levels. By presenting an in-depth study of

the implementation of an adapted IFRS regime of accounting standards, this thesis is

expected to contribute also to the broader literature on the implementation of IFRS.

Additionally, the thesis evaluates the preparedness of large unlisted companies to adopt

the SNC, identifies the institutional factors that are important in understanding their

degree of preparedness, and explores explanations within institutional theory for the low

level of preparedness found. Further, the thesis identifies which strategic response best

describes voluntary adoption of IFRS by large unlisted companies.

Structure

The thesis consists of four essays, in addition to an introduction and a conclusion.

The essays complement each other by using institutional theory to comprehensively

study the adoption of IFRS/SNC by Portuguese companies.

The first essay reviews the fundamentals of institutional theory, its major

criticisms, and how recent developments have overcome those criticisms. It also

overviews the application of institutional theory in accounting research, especially

studies on the adoption of IFRS by nation states. This essay reveals how institutional

theory is a powerful lens for studying processes of accounting change related to

international accounting harmonisation (namely changes from local standards to IFRS

or to adapted IFRS). Finally, the essay suggests some avenues for future research.

15

The second essay provides an in-depth analysis of the processes affecting the

Portuguese accounting model by applying the framework proposed by Dillard et al.

(2004). Using data gathered in interviews and from archival sources, this study

examines the process of accounting change that occurred recently in Portugal with the

adoption of the SNC. The essay explores the top-down deinstitutionalisation of the POC

and the institutionalisation of the SNC. It explores also the articulation of institutional

dynamics at three levels: the political and economic level within which the SNC was

established; the level of professional accounting associations that want to ensure the

accommodation of their interests in the process; and the organisational level of SMEs

that face important institutional contradictions.

The third essay explores the institutional conditions that explain the way large

Portuguese unlisted companies have prepared themselves to adopt the SNC. Using

questionnaire survey responses from 116 large Portuguese unlisted companies at the end

of 2009, this essay evaluates the degree of preparedness of companies by means of a

proxy developed to capture the conversion practices. Additionally, the initial framework

of isomorphic pressures of DiMaggio and Powell (1983) is combined with more recent

perspectives of institutional theory that accommodate change, strategic choice,

organisational resistance and institutional logics.

The fourth essay examines the role of strategic choice in the voluntary adoption of

IFRS by large Portuguese unlisted companies. By applying the framework proposed by

Oliver (1991), this essay determines the type of organisational response that represents

the voluntary adoption of IFRS by large Portuguese firms. Data were collected using

questionnaire survey responses from 158 large Portuguese unlisted companies.

To conclude the thesis, a summary is provided of the main findings of the essays

in light of the research questions outlined. This summary assesses the main theoretical

and empirical contributions of the thesis.

16

17

ESSAY 1

Institutional Theory and the Process of Convergence

to IFRS: A Literature Review

18

19

1. Introduction

Accounting researchers are increasingly viewing accounting as a social and

institutional practice, rather than as a merely technical practice (Miller, 1994).

Accounting standards assign importance and relevance to some facts by establishing

measurement and disclosure rules; and through exclusion, assign immateriality and

insignificance to others (Young, 2003). Accounting rules influence the way resources

are produced and distributed in the economy. They influence what is considered

organisationally and socially rational and valuable, and what is considered irrelevant at

an organisational level (Cooper & Robson, 2006). Viewing accounting as a social and

institutional practice led researchers to study how accounting practices are created,

altered and become embedded.

Institutional theory, specifically Neo-Institutional Theory in Sociology (or New

Institutionalism as it is designated also) is particularly useful in supplementing

frequently used functionalist explanations of accounting practices. The institutional

framework explains the mechanisms through which organisations seek to align

perception of their practices and characteristics with the social environment, and how

such practices become institutionalised in particular organisations (Deegan & Unerman,

2006). As Dillard et al. (2004: 507) contend, accounting-based studies grounded on

institutional theory provided “[e]vidence suggesting the importance of social culture

and environment on the practice of accounting; the use of accounting practices as

rationalizations in order to maintain appearances of legitimacy; and the possibility of

decoupling these rationalizing accounting practices from the actual technical and

administrative processes.” Accordingly, an institutional approach should be valuable in

understanding the processes and consequences of accounting change in specific settings,

particularly where accounting regulations are developed and applied for the first time,

with little investigation of the broader implications of their application for the

organisations involved or for society (Potter, 2005). For these reasons, study of the

adoption of a new accounting system in Portugal is analysed through institutional

lenses.

20

The purpose of this essay is to justify the appropriateness of institutional theory as

a lens to study the diffusion of accounting practices, and particularly, the processes of

accounting change resulting from advances in international accounting harmonisation.

Examination of the process of adopting IFRS worldwide through institutional lenses

provides an opportunity to enhance understanding of the influential constituents, the

role of interests shaping new institutional logics, how IFRS are adopted as a

legitimating device, and the consequences of adoption for the organisations involved. It

increases understanding of the role of key institutions such as the State, the accounting

profession and multinational organisations in shaping the processes by which

accounting regulatory changes occur.

This essay presents the theoretical research framework used in the following

essays. It reviews the underpinnings of institutional theory and recent developments in

that theory, and overviews applications of it in accounting research, particularly in the

financial accounting field. Then, an examination is made of the development of some

avenues of research regarding the application of institutional theory to study of the

international accounting harmonisation process. Finally, conclusions are presented.

This essay does not conduct a full analysis of all studies on institutional theory

(for a deeper review see Greenwood et al., 2008b; Lawrence & Suddaby, 2006; Scott,

2001). Though several other approaches could be taken in conducting this review, the

line of argument used contextualises the empirical studies presented in the following

essays.

2. Institutional Theory Review

2.1 Fundamentals of Institutional Theory

The application of institutional theory to the study of organisations emerged

during the mid-1970s, proposing a phenomenological view of organisations. This

focused attention on meaning systems and the ways in which such systems are

constructed and reconstructed in social action (Greenwood et al., 2008a; Scott, 2004).

Investigators became aware that organisations must consider the technical environment

and the institutional environment: that is, the regulative, normative and cultural-

21

cognitive features that define “social fitness” (DiMaggio & Powell, 1983; Meyer &

Rowan, 1977; Scott, 2001). A starting-point for this stream of research is an opposing

perspective to rational-choice theories and an assumption that organisational structures

and procedures are shaped largely by external factors rather than cost-minimising

objectives (Moll et al., 2006a).

Following Weber’s work, Meyer and Rowan (1977) were interested in the

rationalisation and diffusion of bureaucracies in modern society (Greenwood et al.,

2008a). Meyer and Rowan (1977) embrace the view that organisations are influenced by

widespread social understandings (rationalised myths) that constitute their institutional

context and define what it means to be rational. These myths are highly institutionalised

and, therefore, they are beyond the discretion of individual participants or organisations.

They are taken for granted as legitimate, apart from evaluations of their impact on work

outcomes. For example, an accounting firm may be organised as a professional

partnership, not because that formal structure was thought to be the best form of

governance to facilitate efficient and effective task performance, but because that form

is defined as the appropriate way of organising the conduct of accounting work

(Greenwood & Hinings, 1996).

This institutionalised behaviour, considered as something widely practiced and

taken for granted, is related to the concept of institutionalisation. Institutionalisation is

the process “[b]y which social processes, obligations, or actualities come to take on a

rule like status in social thought and action” (Meyer & Rowan, 1977: 341). However

regarding the concept of institution, Meyer and Rowan did not offer an explicit

definition. As Greenwood et al. (2008a) contend, during the 1980s this concept was

troublesome due to the double meaning it acquired: first, as rationalised myths within a

cultural context; and second, as a framework of (primarily State) regulatory agencies

and policies (Scott & Meyer, 1991) that did not embrace socio-cultural elements

explicitly. Later Scott (1995) clarified this concept by highlighting the regulative,

normative and cultural-cognitive “pillars” that underpin institutions and that can often

be found together. However, his view privileges the cultural cognitive frameworks that

“[p]rovide the deeper foundations of institutional forms” (Scott, 2008: 429).

Accordingly, institutions may be defined as the “[m]ore-or-less taken-for-granted

repetitive social behaviour that is underpinned by normative systems and cognitive

22

understandings that give meaning to social exchange and thus enable self-reproducing

of social order” (Greenwood et al., 2008a: 4-5).

Cultural and social behaviour influence and construct rules, values and norms

which provide legitimacy to organisations that comply with them (Meyer & Rowan,

1977). To institutional theorists legitimacy is not a resource to be possessed “[b]ut a

condition reflecting perceived consonance with relevant rules and laws, normative

support, or alignment with cultural cognitive frameworks” (Scott, 2001: 59).

Consequently, organisations meet society’s expectations in searching for legitimacy.

Organisations unaware of the way their actions are infused with values and unaware of

the need to meet the expectations of society, may lose support, and thus put their

survival at risk (Fogarty et al., 1997). These organisations are more vulnerable to claims

that they are negligent, irrational, or unnecessary. Achieving legitimacy in the eyes of

the world, state, powerful professions, or society at large is an effective survival

(Carruthers, 1995). Suchman (1995) provided greater specificity to this concept by

distinguishing between pragmatic, moral and cognitive legitimacy and by identifying

the various audiences who confer it.

Institutional constituents exerting pressures and expectations on organisations

include not only the State and professions, as institutions, but also interest groups and

public opinion (DiMaggio & Powell, 1983; Meyer & Rowan, 1977). Nonetheless, Scott

(1987) argues that the two primary institutional constituents shaping institutional

environments in modern societies are the State and professional bodies. They do so

directly, by imposing constraints and requirements; and, indirectly, by developing and

promulgating new rational myths. However, the mechanisms they employ to

disseminate structures are distinctive. State actors tend to employ coercion or

inducement in pursuing their ends. They are also more likely to attempt to create a

formal organisational network to carry out their purposes. Professional bodies “[r]ely

primarily on normative and/or mimetic influences and attempt to create cultural forms

consistent with their own aims and beliefs” (Scott, 1987: 509).

Though organisations were envisaged as subject to institutional influences, in

early writings of institutional theory a distinction was made about the extent

organisations are influenced by them. Accordingly, institutional pressures tend to evoke

a ceremonial (or symbolic) response, while technical pressures tend to lead to

23

instrumental change (Meyer & Rowan, 1977). Scott and Meyer (1991) distinguished in

a very explicit manner between institutional environments and technical environments.

“Technical sectors are those in which a product or service is produced and exchanged in

a market such that organizations are rewarded for effective and efficient control of their

production systems”, and by contrast institutional sectors are “[c]haracterized by the

elaboration of rules and requirements to which individual organizations must conform if

they are to receive support and legitimacy” (Scott & Meyer, 1991: 123). This implied

opposition between institutional requirements and efficient performance was present in

the Meyer and Rowan’s (1977) foundational article and was reinforced later when

DiMaggio and Powell (1983) distinguished between conformity pressures among

organisations based on competitive pressures, and those stemming from institutional

pressures.

Contradictions of institutional rules with internal organisational efficiency and

contradictions among multiple institutionalised pressures may be solved through

decoupling (Meyer & Rowan, 1977; Zucker, 1987). In this situation, a separation occurs

between the systems used to secure external legitimacy and those used to manage

activities of the organisation (Nor-Aziah & Scapens, 2007; Orton & Weick, 1990).

Decoupling can be seen as a natural reaction by organisations that are subject to

rationality contexts and are pursuing social legitimacy (Meyer & Rowan, 1977). The

main advantage of decoupling activities is in enabling organisations to maintain

standardised, legitimating, formal structures while their activities vary in response to

practical considerations.

This concept was further extended by Orton and Weick (1990). They adopted a

multidimensional interpretation of loose coupling and distinguished this concept from

tight coupling and decoupling. Tightly coupled systems have responsive components

that do not act independently from each other (“responsiveness without

distinctiveness”); decoupled systems have elements that are distinctive from, and do not

respond to other elements (“distinctiveness without responsiveness”), whereas loosely

coupled systems have distinctive elements, independence or with some degree of

independence from other elements, but yet are responsive because they are connected or

linked (“distinctiveness and responsiveness”). Several studies have applied these

concepts in understanding processes of accounting change (e.g. Cruz et al., 2009;

Lukka, 2007; Nor-Aziah & Scapens, 2007).

24

Adopting similar structures displayed by other significant organisations can also

be perceived as a source of legitimacy through alignment with rationalised institutional

myths. This idea that organisations converge upon the same response to their

institutional environments was further developed by DiMaggio and Powell (1983).

These authors resort to Hawley’s description of isomorphism as a constraining process

that forces one unit in a population to resemble other units that face the same set of

environmental conditions. DiMaggio and Powell (1983) argue that there are two types

of isomorphism: competitive isomorphism and institutional isomorphism. Competitive

isomorphism assumes a system rationality that emphasises market competition. It is

relevant for those fields in which free and open competition exists. However, this

concept must be complemented by an institutional view of isomorphism.

For DiMaggio and Powell (1983), the concept of institutional isomorphism is a

useful tool for understanding the rationalisation of modern organisational life. The most

cited contribution of their paper (according to Greenwood et al., 2008a) is its discussion

of the three mechanisms through which institutional isomorphic change occurs: that is,

through coercive, normative and mimetic pressures.

Coercive isomorphism relates to power relationships and politics. It concerns the

way powerful organisations, including the State and (financial) resource suppliers, exert

force on organisations to adopt specific internal procedures and practices, or else face

sanctions. In Portugal, the adoption of the SNC should lead to the deinstitutionalisation

of the POC and to the institutionalisation of a new accounting system. In this particular

case, organisational change is a direct response to government mandate.

Normative isomorphism relates to what is widely considered a proper course of

action due to the signalling of the environment of organisations that the adoption of a

particular practice or structure is a correct moral choice. It usually arises by claims of

particular dominant professions or professional bodies because similar education and

training instil identical professional values of what is “proper” (Boxenbaum & Jonsson,

2008).

Mimetic isomorphism occurs when organisations dealing with uncertainty adopt

the internal structures or procedures adopted by other organisations they perceive to be

more successful and legitimate (DiMaggio & Powell, 1983). These forms of

institutional pressures can operate simultaneously and hinder identification of which

25

form is more important. This process is field-specific. Analytical emphasis is placed at

the organisational field or “societal sector” which is considered particularly suited to the

study of institutional processes (Scott, 1991; Scott & Meyer, 1991). Tolbert and Zucker

(1983) stated that the process of diffusion involves two stages. Early adopters are

motivated by technical and efficiency considerations while later adopters respond

primarily to legitimacy concerns by adopting “modern, efficient and rational”

procedures even though the procedures are not especially functional.

DiMaggio and Powell (1983) define an organisational field as those set of

organisations that, in the aggregate, constitute a recognised area of institutional life,

such as key suppliers, resource and product consumers, regulatory agencies, and other

organisations that produce similar services or products. Because organisational fields

help to bound the environments within which institutional processes operate, this level

has been favoured as a site for the explanation of structuration processes (Scott, 2004).

Fundamental to this definition is the focus upon communities of organisations that

directly interact with one another or are influenced by each other in a meaningful way

(Greenwood et al., 2002).

Homogenization emerges out of the structuration of organisational fields

(DiMaggio & Powell, 1983). The concept of structuration captures the process whereby

a gradual maturity and a specification of roles, behaviours, and interactions of

organisational communities occurs (Greenwood et al., 2002). DiMaggio and Powell

(1983) described structuration of organisational fields as a four-stage process. The

increase of interactions among organisations in a field is followed by the emergence of

thoroughly defined intraorganisational structures of domination and patterns of

coalition, by an increase in the information with which organisations have to deal, and

the development of a mutual awareness by participants in a field of a common purpose.

A diverse set of organisations constitute an organisational field as they increase the

homogenization of their activities, of their structures, and of new entrants as well. When

organisational fields start, they display considerable diversity in approach and form.

But, once a field becomes well established, there is an inevitable push to homogeneity.

Nonetheless, boundaries and behaviours are not fixed and structuration does not imply

perfect reproduction. Field should be seen not as static but as evolving. Its boundaries

are constantly under review and subject to redefinition and defence due ongoing claims

and counterclaims (Greenwood et al., 2002).

26

2.2 Overcoming the Major Criticisms of Institutional Theory

As institutional theory was becoming clearly established within organisational

theory as a productive lens to understand the relationship between organisations and

their environment, it was criticised for three major reasons: first, in terms of opposition

between technical (market) and institutional environments (Granlund & Lukka, 1998;

Hopper & Major, 2007; Mezias, 1990; Scott, 2001); second, in terms of neglect of

power, agency and interests (Beckert, 1999; Dillard et al., 2004; DiMaggio, 1988;

Lounsbury, 2008; Oliver, 1991; Scott, 2001; Scott & Meyer, 1991); and third, for

failing to study the processes whereby institutions are created, transposed and/or

decomposed (Cruz et al., 2009; Dillard et al., 2004; Hopper & Major, 2007; Scott,

2001; Seo & Creed, 2002).

2.2.1 Opposition between technical and institutional environments

The distinction between technical environments (that reward efficient

performance) and institutional environments (that reward conformity to rationalised

myths) was frequently drawn (Powell, 1991; Scott, 1991). As stated by Carruthers

(1995), in earlier times of institutional theory efficiency was the means-ends logic in the

heart of technical environments, while legitimacy and cultural logic was the core of

institutional environments. However, this overly narrow understanding of where

institutional processes occur was discarded gradually. Scholars began to recognise that

“markets” were institutions (Greenwood et al., 2008a), that economic actors can have

several goals simultaneously, and that actors do not concentrate on profits to the

exclusion of all else (Carruthers, 1995). As Hooper and Major (2007: 63) contend

“[N]IS researchers now recognize that institutional and economic pressures are not

mutually exclusive or oppositional, can confront organizations simultaneously, and

prevail on both public and private organizations.” The overcoming of this limitation of

institutional theory broadened the scope of institutional theory in understanding all

types of organisations, including for-profit organisations (e.g. Granlund & Lukka, 1998;

Hopper & Major, 2007; Hyvönen et al., 2009; Jamali, 2010; Mezias, 1990; Palmer et

al., 1993; Touron, 2005).

27

2.2.2 Overreliance of institutional theory on mimesis

The second major criticism this essay addresses is the overreliance of institutional

theory on mimesis as the core mechanism to explain diffusion. Such explanation reflects

a narrow conceptualisation of institutional dynamics, neglecting the role of power,

agency and interests in shaping organisational action (DiMaggio, 1988; Lounsbury,

2008). There was an assumption of passivity. Expectations of acceptable practice were

given by the institutional environment and organisations conform to them to gain

legitimacy and continued support. The study of diffusion emphasised a two-stage

process whereby later adopters engage in mindless imitation driven by legitimacy

concerns (Lounsbury, 2008). However, several studies introduced into institutional

arguments the role of entrepreneurs (DiMaggio, 1988) and intraorganisational processes

(Greenwood & Hinings, 1996) in change processes. They have argued that the power

and interests of organisational actors in translating and using social expectations

influences the way rules and structures are institutionalised (e.g. Carpenter & Feroz,

2001; Covaleski & Dirsmith, 1988; Powell, 1991; Scott, 1991).

In more recent studies of organisational decision-making, practice variation and

agency, two different approaches to rationality of actors are identified (Lounsbury,

2008): instrumental rationality and institutional rationality grounded on the concept of

logic.

The first approach has incorporated agency by emphasising a strategic approach to

the rationality of actors that explains divergences in motives and behaviour. Oliver’s

(1991) essay combined institutional and resource dependence arguments to introduce a

more purposive action into institutional theory (Scott, 2008). Following the

classification of the variety of behaviours that organisations may exhibit in response to

institutional pressures, Oliver (1991) identified the conditions that constrain the

willingness and ability of organisations to conform to these pressures. Some of those

conditions are organisational scepticism about the legitimacy of institutions; political

self interest among organisational actors that are cross-purposes with institutional

objectives; organisational efforts to control processes and outputs; inadequate resources

or capacity to meet the requirements for conformity or facing conflicting institutional

pressures that make unilateral conformity unachievable. “Organizational responses to

institutional pressures toward conformity will depend on why these pressures are being

28

exerted, who is exerting them, what these pressures are, how or by what means they are

exerted, and where they occur” (Oliver, 1991: 159). These five questions correspond to

five institutional antecedents – cause, constituents, content, control and context, whose

variations are hypothesised to determine choice of strategy. Decoupling began to be

seen as one kind of response to institutional pressures, among other responses that vary

in type and extent across organisations, which itself required explanation (e.g. Westphal

& Zajac, 1994; Westphal & Zajac, 1998). The strategic response model designed by

Oliver was applied widely in studying the ways and extent to which organisations

respond to institutional pressures (Clemens & Douglas, 2005; Goodstein, 1994; Ingram

& Simons, 1995; Jamali, 2010), including in the accounting field (Abernethy & Chua,

1996; Carpenter & Feroz, 2001; Etherington & Richardson, 1994; Hyvönen et al., 2009;

Modell, 2001).

The second approach to interests and agency emphasises a more collective and

institutional approach to rationality. This is closer to the initial impetus of institutional

theory and of the “Weberian” sources of formal organisational structures (Lounsbury,

2008) encompassing broader structures of meaning. This approach relies on the concept

of logic, and, as Greenwood et al. (2008a) contend, represents a welcome return of the

importance of cultural symbols. Friedland and Alford (1991) introduced institutional

logics into contemporary institutional theory to describe the contradictory practices and

beliefs inherent in institutions. They argued that core institutions of modern societies –

the capitalist market, the bureaucratic State, families, democracy and religion - have

central logics that constrain the means and ends of individual behaviour and are

constitutive of individuals, organisations and society. Accordingly, logics constitute the

rules and conventions of a particular organisational field, but they are nested within

these higher-order societal institutions.

Thornton and Ocasio (1999: 804) defined institutional logics as “[t]he socially

constructed, historical patterns of material practices, assumptions, values, beliefs and

rules by which individuals produce and reproduce their material subsistence, organize

time and space, and provide meaning to their social reality.” These broader cultural

beliefs and rules structure cognition and guide actors’ decision making in a field: they

help organisational actors focus attention on a limited set of issues and solutions that are

consistent with the prevailing logic; they determine which issues are important and

should be a focus of attention; and determine which answers and solutions are

29

fundamental (Thornton, 2002). Because society is viewed as an inter-institutional

system, heterogeneity and agency can be theorised and observed due to the

contradictions between the logics of different institutional orders (Thornton & Ocasio,

2008). The existence of multiple forms of rationality (multiple logics) provides a

foundation for the explanation of organisational variety (Lounsbury, 2008). Research on

institutional logics that adopts a field-level perspective has confirmed the existence of

competing logics within a field (Greenwood & Suddaby, 2006; Lounsbury, 2007;

Suddaby et al., 2007) and how competing logics provide a foundation for resistance to

change (Marquis & Lounsbury, 2007). Nonetheless, when logics are consistent and

easily taken-for-granted they are most influential (Owen-Smith & Powell, 2008).

Agency is addressed within the institutional logic approach through the

assumption that individual and organisational actors seek power, status and economic

advantage. However, the means and ends of their interests and agency are enabled and

constrained by prevailing institutional logics (Thornton & Ocasio, 2008). This

embeddedness of agency assumes that society consists of three levels – individuals,

organisations and institutions – whereby organisations and institutions specify

progressively higher levels of constraint and opportunity for individual action

(Friedland & Alford, 1991).

2.2.3 The scarce attention given to institutional dynamics

The third major criticism of institutional theory is the scarce attention given to

explanations of institutional dynamics. This is how institutional practices are

established, transposed and decomposed; and also is related to the multilevel

institutional context that constitutes the framework for these organisational processes.

According to Greenwood and Suddaby (2006), processes of institutional change have

been assigned to exogenous sources and endogenous sources. Exogenous sources of

change can take the form of social upheaval, technological disruptions, competitive

discontinuities and regulatory change. Endogenous sources have been examined

through the idea that institutional entrepreneurs are well-resourced role playing actors

who regard institutions as an opportunity to realise highly valued interests (DiMaggio,

1988). Additionally, theoretical models were outlined addressing institutional creation,

30

institutional change and processes of deinstitutionalisation (Greenwood et al., 2002;

Lawrence et al., 2001; Oliver, 1992; Seo & Creed, 2002).

Nonetheless, these studies neglected the institutional dynamics across different

levels of analysis over time (Dillard et al., 2004; Hopper & Major, 2007; Modell, 2009).

Research into understanding change processes and their motivations is restricted largely

to factors at the organisational field level (e.g. D'Aunno et al., 2000; Ezzamel et al.,

2007; Greenwood & Suddaby, 2006; Greenwood et al., 2002; Suddaby et al., 2007) or

at the organisational level (e.g. Burns, 2000; Burns & Scapens, 2000; Lukka, 2007).

Such research is limited in its capacity to recognise how higher levels of the societal

context influence and define the organisational context. It is also limited in recognising

the prominence of power, special interests and the political nature of the social context,

and the links between social action through the various levels of the institutional

environment.

In contrast, Dillard et al. (2004) proposed a framework within which a hierarchy

of institutional influence is formulated. They articulate the institutional dynamics over

the three levels of social systems: political and economic level, organisational field level

and organisational level. By integrating Weber’s ideas of rationality and power with

structuration theory (Giddens, 1976, 1979, 1984), they specified the primary structural

components of the inter-related context (legitimation, signification and domination

structures) within which agents promote change or reinforce the status quo (Dillard et

al., 2004). Englund and Gerdin (2008) present several studies in the accounting field

that have used also Giddens’ conceptualisations. Structuration theory can overcome the

inherent inertia of early formulations of institutional theory and the dualism between

structure and action by conceptualising structures as processes. Structures can only exist

if, and to the extent to which, they are continually revised and reproduced. Structures

provide the context within which action occurs, but are themselves either changed or

reproduced by the understandings and choices made by knowledgeable and reflexive

actors (duality of structure). Several studies have adopted the Dillard et al. (2004) way

of integrating institutional dynamics with the context of institutional practices (Cruz et

al., 2009; Hopper & Major, 2007; Irvine, 2008; Tsamenyi et al., 2006).

31

3. Accounting Research Applying Institutional Theory

Systems-oriented perspectives used in accounting research, such as legitimacy

theory, stakeholders’ theory and institutional theory, assume that organisations are

influenced by, and in turn have influence upon, the society in which they operate

(Deegan & Unerman, 2006). Nonetheless, “[i]nstitutional theory is perhaps the

dominant approach to understanding organizations” (Greenwood et al., 2008a: 2).

Specifically, in the accounting field, institutional theory is the branch within

organisational studies which has probably had most influence on recent accounting

research (Moll et al., 2006a).

Covaleski and Aiken (1986), Meyer (1986), Covaleski and Dirsmith (1988) and

Mezias (1990) were some early adopters of institutional theory in accounting research.

But the applicability of institutional theory in the accounting field has been proven over

the years by numerous studies.

3.1 Contemporary Accounting Research

Studies of accounting changes in the public sector are quite extensive in the

institutional literature (e.g. Brignall & Modell, 2000; Broadbent et al., 2001; Covaleski

& Dirsmith, 1991; Covaleski et al., 1993; Mezias & Scarselletta, 1994), especially in

the field of management accounting (e.g. Abernethy & Chua, 1996; Collier, 2001;

Hyvönen et al., 2009; Lapsley & Pallot, 2000; Modell, 2001, 2009; Nor-Aziah &

Scapens, 2007). However, as explained earlier, institutional theory is also particularly

useful for analysing organisations that are confronted with institutional and market

pressures simultaneously. These studies have focused on, among other issues, the

importance of institutional pressures in explaining accounting practices of for-profit

organisations (Chalmers & Godfrey, 2004; Hussain & Hoque, 2002; Mezias, 1990),

change in management accounting systems (Granlund, 2001; Granlund & Lukka, 1998;

Ribeiro & Scapens, 2006; Soin et al., 2002), how adoption of these systems in a

subsidiary organisation is shaped by institutional factors and may decouple from

internal operations (Cruz et al., 2009; Dambrin et al., 2007; Yazdifar et al., 2008), and

how diffusion involves isomorphic forces, legitimacy concerns and accommodation of

32

interests of organisational actors (Hopper & Major, 2007; Masrani & McKiernan,

2011).

Institutional theory has also contributed significantly to understanding the choice

of accounting standards. Usually, institutional researchers depict adoption of accounting

practices as an important means by which organisations respond to pressures to enhance

their legitimacy and prospects for survival. Actions are driven by prevailing concepts of

what is “rational”, without demonstrating the efficacy of new practices (Potter, 2005).

Carpenter and Feroz (1992; 2001) revealed that the decision to adopt generally accepted

accounting principles [GAAP] by US State governments was taken to produce a symbol

of legitimacy; and that it was influenced by powerful interests and reflected strategic

responses to institutional pressures to adopt GAAP. Analysis of the institutional

environment of these State governments showed that coercive pressures (in the form of

resource suppliers) and normative pressures play a significant role in their decision to

adopt GAAP. Touron (2005) used institutional theory to analyse the choice of US

GAAP by French companies before 1973. This study concluded that adoption was

driven by normative pressures (multinational audit companies) and mimetic pressures

(imitation of leaders in the sector). Insights obtained by these studies called attention to

important institutional pressures that could also be present in the Portuguese regulatory

process, to difficulties that could arise from the adoption process, and to evidence of

isomorphic forces in action at the organisational level.

Several studies informed by institutional theory have examined the role of the

accounting profession in the diffusion of accounting practices. Fogarty et al. (1997)

analysed a self-regulated state accountancy board (Ohio State) for which the most

important objective was to convince society of the quality of services provided by

accounting professionals, regardless of its incapacity to grant professional competence.

Institutional theory was used to explain loose coupled practices and how adoption of a

structure was needed to preserve the public’s belief in accounting self-regulation.

Greenwood and Suddaby (2006) analysed the circumstances that enabled multinational

audit firms, which are at the centre of a mature field (auditing financial data), to act as

institutional entrepreneurs. Drawing upon institutional theory and network theory, these

authors revealed the processes by which embeddedness is weakened and, consequently,

the scope for action is enlarged: first, the network location defines the institutional

contradictions to which actors are exposed; second, contradictions affect the extent of

33

their embeddedness, and consequently, the extent of the behaviour that is institutionally

determined; and third, embeddedness of actors can change because fields evolve over

time.

Regarding the accounting profession, it is also important to acknowledge the

significant position of professional associations and multinational audit firms in

processes of accounting change. Greenwood et al. (2002) argue that professional

associations can be agents of reproduction of institutionalised practices because they

can play a significant role in legitimatising change. These authors posit that professional

accounting associations can legitimate change, first by managing debate within the

profession; and second, by reframing the professional identities presented to others

outside the profession. Accordingly, these associations are vital in establishing the

institutional logic of the accounting profession - a process whereby competing interests

are reconciled and subjugated on an ongoing basis. However, Suddaby et al. (2007)

noticed a shift in the structural boundaries of accounting regulation, in which the typical

regulatory bargain between professional associations and nation states is being taken

over by multinational audit firms and non-governmental organisations. “The old

assumption that professional associations, along with the coercive authority of state

governments, are the legitimate means of creating rules has been replaced by an

assumptive logic that large accounting organizations, with the legitimating authority of

capital market regulators, are the appropriate body for creating accounting rules”

(Suddaby et al., 2007: 353).

Nonetheless, the new actors do not displace the old actors, but are superimposed

on them. Accordingly, transnational structures are reliant upon the coercive power of

nation states to discipline professional accounting associations to adopt the regulatory

logics and practices emerging at the transnational level. This form of soft power obtains

compliance, not by coercion, but by promoting a dominant logic and by actors’ ongoing

motivation to maintain their membership in transnational networks. Regarding the

process of institutionalisation of the SNC, findings of these studies were taken into

account in examining how the Portuguese accounting profession affected both the

outcome of the regulatory process and the legitimacy of the rules and practices

produced.

34

3.2 International Accounting Harmonisation Research

In 2000, the International Organisation of Securities Commissions [IOSCO]

recommended that its members allow multinational issuers to use IFRS in cross border

offerings and listings. This was the culmination of a legitimising process in which IASB

has engaged, from its foundation in 1973. This has included, among other steps,

developing a conceptual structure (1989) and a complete set of high quality financial

standards (particularly from 1995 onwards) (Whittington, 2005). This process, along

with the change of the IASB structure in 2001, led to broad acceptance of IFRS

worldwide. These standards have been accepted by most of the world’s stock exchanges

and more than 70 countries are now requiring listed companies to consolidate financial

statements in accordance to these standards (Alp & Ustundag, 2009). Nonetheless,

economic rationales of increased transparency, comparability and quality of financial

statements do not suffice in explaining how IFRS have gained such widespread

acceptance, not least because substantive empirical support of these advantages is not as

strong as is usually advocated (Chua & Taylor, 2008).

Two studies, specifically related to the adoption of IFRS, have addressed the

institutional context in which countries have chosen to adopt these standards. Mir and

Rahaman (2005) analysed the adoption of IFRS by Bangladesh. In this case, the

coercive pressures exerted by donor agencies (such as the World Bank and the

International Monetary Fund) on the Bangladesh government led it to lobby the

accounting profession - a particular accounting association, to adopt IFRS.

Simultaneously, due to the legitimacy IFRS confers on adopting nations, developing

countries are alleged to mimic accounting standards of developed nations but without a

careful appreciation of their specific national accounting needs. In this study, the

tensions between the accounting association that supported IFRS and other important

accounting associations and an undemocratic process that did not involve other

interested parties, jeopardised the process and created compliance problems. These

authors contend that the most problematic aspect of adopting IFRS is not the content of

these standards but the need for a coordinated adoption infrastructure.

Irvine (2008) focused on institutional pressures of the global and societal context

to analyse the option taken by the United Arab Emirates [UAE] to adopt IFRS. The

study reveals this was a response to coercive, normative and mimetic forces in the form

35

of regulatory regimes of the World Bank and multinational corporations, Big-four

accounting firms and relationships with the UAE’s trading partners. Consistent with the

ideas of Mir and Rahaman (2005), she argues that many emerging and developing

nations adopt IFRS because of their need to share the benefits promised by such

adoption. These include technical benefits (the advocated economic rationales) and a

powerful legitimising force with symbolic power. IFRS confer credibility to these

nations to compete for foreign investment in world capital markets. Irvine (2008) claims

that once the adoption is made, a new set of institutional expectations emerged in

organisational fields and individual organisations about the embeddedness of new

accounting practices in their structures and routines. However, because “[i]nternational

standards have not been developed with the needs, culture and regulatory infrastructure

of unique countries in mind” (Irvine, 2008: 137) loose coupling of these standards could

be expected. This relates to uncertainties about the practical effects of formal

accounting harmonisation (Rodrigues & Craig, 2007). Genuine transparency of

financial reporting and effective compliance with IFRS are difficult to achieve when

these standards are being applied without any adaptation to social, economic and

cultural environments that have distinct accounting practices and different users of

financial information (Cooper et al., 2003; Irvine, 2008; Mir & Rahaman, 2005;

Rodrigues & Craig, 2007).

4. Research Avenues to the Study of Accounting Harmonisation Applying

Institutional Theory

4.1 Adopted in the Thesis

Study of diffusion of organisational practices has emphasised the two-stage

process of Tolbert and Zucker (1983), assuming that a practice diffuses quickly because

it becomes institutionalised. However, empirical research must show that adoption is

associated more with changing norms, collective beliefs and laws, than with a mere

increase in the number of adopters (Boxenbaum & Jonsson, 2008). This relates to recent

theoretical developments acknowledged by Greenwood et al. (2008a). These have

moved from a “diffusion” to a “translation” model for understanding institutional

processes. Translation refers to the transformation of ideas and practices which are

interpreted and reformulated within (and during) the process of adoption, diffusion

36

and/or institutionalisation. These authors argue that this concept promises a richer and

more detailed understanding of how institutional practices diffuse across fields over

time because it emphasises the symbolic aspects of institutionalisation, the complexities

surrounding the construction of rational myths, and the travel of ideas across

organisational fields. This concept was used by Hopper and Major (2007) to study

diffusion at the organisational level. This study also incorporated the concept of praxis

used in Seo and Creed’s (2002) framework and relabelled the organisational level in the

Dillard et al.’s (2004) model to incorporate the organisational dynamics of functionally

and hierarchically differentiated groups. In the second essay of the thesis the recursive

institutional change model of Dillard et al. (2004) is applied with the adjustments

suggested by Hooper and Major (2007). This is done to study the process of

institutionalisation of the SNC in the Portuguese societal context.

In studies of convergent behaviours, isomorphism is assumed to indicate the

functioning of institutional pressures (e.g. Carpenter & Feroz, 2001; Mezias, 1990; Mir

& Rahaman, 2005; Palmer et al., 1993). According to Greenwood et al. (2008a),

research should explore the processes behind (and the reasons for) isomorphic

behaviour. This can be accomplished by interpreting and identifying the institutional

logics that induce and propel imitation. For this reason analysis of isomorphic pressures

must be made in light of the institutional logics at work. These institutional logics

provide cognitive orientation about what practices are appropriate (Thornton, 2002;

Thornton & Ocasio, 2008), enabling understanding of why isomorphic behaviours

occur. However, since the institutional logics approach views any context as influenced

potentially by competing logics (Thornton & Ocasio, 2008), resistance to isomorphic

pressures should also be addressed. This research avenue was explored in the third

essay of the thesis in the explanation of the levels of preparedness of large Portuguese

unlisted companies to adopt the SNC.

Institutional theory explains why organisations that face common institutional

pressures employ different organisational responses to these pressures, either by

engaging in different strategic responses (Oliver, 1991), or by virtue of competing

logics (Lounsbury, 2008; Thornton, 2002; Thornton & Ocasio, 2008). These more

active conceptualisations of organisational action highlight the active role of

organisations and other actors in negotiating and shaping their environments.

Accordingly, they should be extremely helpful in understanding different organisational

37

responses in adopting IFRS. Empirical research on the international accounting

harmonisation process has been dominated over the years by positive theories and

rational and economic arguments (e.g. Al-Basteki, 1995; Ashbaugh, 2001; Daske et al.,

2008; Dumontier & Raffournier, 1998; El-Gazzar et al., 1999; Lopes & Rodrigues,

2007; Murphy, 1999). The literature reviewed shows that organisational outcomes are

affected by the institutional environment and that, in the process of accounting

harmonisation, institutional forces can conceal rational motives. As Suddaby et al.

(2007) contend, institutional theory offers a valuable theoretical framework for

understanding the dynamics of globalisation and the processes by which dominant

templates are adapted to local contexts and diffused globally. The fourth essay of the

thesis confirms the usefulness of institutional theory in the context of the voluntary

adoption of IFRS through its accommodation of relevant institutional expectations of

the organisational field. By applying the framework proposed by Oliver (1991), the role

of strategic choice in decisions of large Portuguese unlisted companies is evaluated.

This helps to understand their voluntary adoption of IFRS.

4.2 Further Research

Future research studying the adoption of IFRS or adapted IFRS would benefit

from a wider use of a logic-centred institutional perspective. Resistance to institutional

changes can be understood as socially structured by competing logics (Marquis &

Lounsbury, 2007). Loose coupling of IFRS adoption was identified in accounting

research that applied an economic perspective: companies and auditors assert financial

statements comply with IFRS when analysis of their accounting policies and notes

indicates otherwise (Gray & Street, 2001; Street & Bryant, 2000; Taylor & Jones,

1999). Accordingly, it would be helpful to understand the various kinds of resistance to

adoption of IFRS, how and under what conditions actors mobilise resources and

relationships to create effective resistance, and how multiple logics relate to practice

variation (different levels of adoption of IFRS) (Lounsbury, 2008; Marquis &

Lounsbury, 2007).

Additionally, Boxenbaum and Jonsson (2008: 83) argue that “[e]mpirical studies

that invoke isomorphism do not investigate the resulting level of isomorphism in the

field, but instead elaborate on the mechanism by which practices spread.” Accordingly,

38

the implicit assumption that diffusion equals isomorphism needs to be demonstrated by

future research. Such research should analyse isomorphism as an outcome of diffusion

processes and should measure its levels of similarity. Diffusion studies include a larger

set of phenomena where practices are not necessarily adopted for legitimacy concerns

(e.g. competitive reasons or vicarious learning) (Boxenbaum & Jonsson, 2008;

Greenwood et al., 2008a). However, legitimacy is central to the kind of diffusion that

relates to institutional theory, whether the outcome is isomorphism or decoupling. For

these reasons, examination of the casual relationship between legitimacy and diffusion

and how isomorphism and decoupling interact with each other as outcomes of diffusion

processes, can lead to a more dynamic theory of institutions (Boxenbaum & Jonsson,

2008). Further empirical research should address these concerns. For instance, does

decoupling become more frequent when a field becomes more isomorphic? Is

decoupling crucial for obtaining high levels of isomorphism in an organisational field?

(Boxenbaum & Jonsson, 2008). Is the adoption of the different levels of the SNC driven

by legitimacy-seeking behaviours? These lines of inquiry merit careful attention in

future research analysing the adoption (or loose coupling) of the new accounting

practices of the SNC in its post-implementation phase.

Finally, there is a lack of research relating to the process of institutionalisation of

IFRS or adapted IFRS by nation states. Researchers must investigate how, following

adoption of these standards, changes in laws and regulations occur, normative models of

appropriate behaviour are developed, and new taken-for-granted understandings are

legitimised. Thus, the theoretical arguments that IFRS lead to high quality financial

statements needs empirical validation. Tight coupling will only be achieved if

institutionalisation of these standards occurs. Nonetheless, the process of

institutionalisation of new accounting standards is, at the same time, an opportunity for

better understanding of the conditions conducive to deinstitutionalisation processes.

Within institutional theory relatively little is known about the processes of

deinstitutionalisation. Efforts are lacking to unpack the strategies and dynamics

associated with extinction of institutions (Dacin & Dacin, 2008). Because organisational

forms and fields erode as well as emerge, it is instructive to observe both the beginning

and the end, since in both the construction and deconstruction phases, conflict and

agency are likely to be more visible (Scott, 2005). Adoption of IFRS constitutes a

39

prolific research arena for this purpose since it implies the erosion and/or extinction of

institutionalised practices of the replaced accounting system.

5. Conclusions

The social and institutional paradigm adopted in accounting research assumes

accounting is a device for intervening in the functioning of organisations and societies,

rather than it being a neutral device that merely documents and reports economic facts

and technical practice (Miller, 1994). Underpinning this perspective of accounting is the

assumption that the choice of accounting practices implies the adoption of a specific

lens for analysing and understanding individuals’ activities and organisational

outcomes. In turn it offers a basis for governing people, processes, organisations and

societies (Miller, 1994; Potter, 2005). The ideas of institutional theory, as explained in

this essay, provide explanations about how organisations, either voluntarily or

forcefully, adopt or adjust their practices in accord with societal and cultural values and

norms, to enhance legitimacy. From an institutional perspective, accounting is seen as

one way in which organisations incorporate rational conceptions of organising,

reflecting the myths of their institutional environments (Miller, 1994). Wider political,

social and cultural environments frame how organisations adopt (even if only

ceremonially) formal systems.

The institutional view of accounting contributed to a significant broadening of the

agenda of accounting research. Some of the themes embraced by this research trend

include analysis of the institutional pressures that influence accounting standards

setting, of the way the accounting profession shapes institutionalisation processes and

institutionalised fields, of the diffusion of accounting practices, and the processes of

accounting change.

Institutional theory has an important capacity to stimulate contextualisation: it

contextualised the phenomena under study, whether that context encompasses

regulatory, historical, political, cognitively tacit, or socially embedded settings

(Greenwood et al., 2008a). The studies reviewed reveal the adequacy of the institutional

framework to outline and understand the diffusion of international accounting standards

among individual organisations and among nation states. Adoption of IFRS or of

40

adapted IFRS is linked intrinsically to a set of concepts that underpin institutional

theory: legitimacy concerns, organisational adaptation (at different levels) to

institutional environments, national and transnational regulatory processes, the central

role of the accounting profession (either in the form of professional associations or in

the form of multinational audit firms) in shaping normative systems, and the

promulgation of IFRS as a taken-for-granted means of achieving high quality financial

information.

Institutional theory still has challenges in finding equilibrium as a coherent but

prolific theory in its several directions of development (see Greenwood et al., 2008b;

Lawrence & Suddaby, 2006; Scott, 2001). At the same time little is known about the

processes through which IFRS become institutionalised at a local level and the new

practices that become embedded in these societies. The combination of institutional

theory with international accounting should result in a productive and creative arena of

research. Institutional theory benefits from using a complex subject with multiple

societal levels and actors, and through which it can draw the concrete experiences it

needs to prosper. International accounting research benefits from adding an

institutionalist perspective to the highly rational and instrumentalist discourse of

accounting harmonisation.

41

ESSAY 2

Institutional Analysis of a New Accounting Regime:

Implications for Portuguese SMEs of Adoption of

International Financial Reporting Standards

Adapted

42

43

1. Introduction

In this essay we apply the recursive model of institutional change proposed by

Dillard et al. (2004) to understand the dynamics and institutional consequences of the

change to a new accounting system in Portugal in 2010. The new system stemmed from

a decision of the EU to require that IFRS be adopted by listed companies in the EU in

their consolidated financial statements in 2005. The dual accounting system that arose

in many EU member-states (such as Portugal) hampered comparison of company

financial information in (and between) countries. In keeping with their different cultural

heritages, socio-historical backgrounds and levels of economic development, the EU

member-states took different options to address this regulatory problem.4

In Portugal, the response was to develop a new accounting system known as SNC.

The SNC contained a set of accounting standards, based on IFRS, which were to be

applied to unlisted companies from 2010 onwards. Thus, for unlisted companies, the

existing code-law based Portuguese accounting system was replaced with the SNC

system that was inspired by standards issued by the IASB. The introduction of the SNC

led to important institutional changes in Portuguese accounting: previous accounting

criteria and practices had to be deinstitutionalised, new legitimating criteria were

established and new accounting practices are in the process of being embedded.

Through the use of the theoretical framework proposed by Dillard et al. (2004),

we conduct an in-depth analysis of the processes of change that occurred in the

Portuguese accounting system. This model has been applied in research that has focused

on institutional changes affecting accounting (Cruz et al., 2009; Hopper & Major, 2007;

Irvine, 2008; Tsamenyi et al., 2006). The framework of Dillard et al. (2004)

conceptualises change as the degree to which new behaviours are institutionalised at

three levels: the broad economic and political level, the organisational field level, and

the organisational level. We apply this model in the context of accounting change to

elicit knowledge about the dynamic (and often recursive) interplay between evolving

institutional mechanisms across these three levels of analysis (Dillard et al., 2004;

Hopper & Major, 2007; Modell, 2009). We provide an understanding of the repertoires

4 Information about the options taken by member-states is available at www.iasplus.com/europe/1007ias-use-of-options.pdf (accessed March 2011).

44

of action in these institutional fields, and of the forces that promoted the gradual

transformation of meanings and criteria in accounting. We capture the dynamics of

change in the Portuguese accounting system; show how criteria and practices were

articulated over the three levels of the Portuguese social system; and reveal how

interests and actors influenced the change process.

This essay contributes in two ways to the scarce literature that uses institutional

theory to analyse adoption of IFRS by nation states (Irvine, 2008; Mir & Rahaman,

2005): first, by presenting an in-depth study of the implementation of a new accounting

system based on these standards; and second, by highlighting the difficulties of

changing legitimating criteria and accounting practices to achieve a de facto application

of the standard for SMEs.

Irvine (2008) and Mir and Rahaman (2005) did not determine the effects of the

adoption of IFRS on the institutional dynamics that flow between the broad economic

and political level, the level of the accounting organisational field, and the level of the

organisation (that is, of accountants). In contrast, our analysis of the Portuguese

experience explores the repercussions for signification, legitimation and domination

structures at each of these three levels; and we show how actions of agents influenced

outcomes at each level. Review of aspects of the progress of IFRS adoption at a national

level (for Portugal) should be relevant in other countries that are making similar

changes in their accounting systems (e.g. Turkey, Mexico, Japan).We also reveal the

usefulness of the Dillard et al. (2004) model in explaining the process of accounting

change in Portugal. At each of the three levels, sensitivity to the interests and relative

power of actors is essential in understanding the institutional dynamics and

institutionalising processes of the new Portuguese accounting system (SNC).

Importantly, we refine the Dillard et al. (2004) model by revealing how actions of

agents at the organisational field level can counteract the institutionalisation process

before the latter reaches the organisational level. Additionally, we draw upon the notion

of loose coupling to argue that it is easier to change accounting standards than it is to

change the representational schemas used by accountants to frame organisational

reality. Analysis at the level of small accounting firms revealed a loose coupled

application of the Portuguese SME accounting standard. We found that accountants

attempted to combine old representational schema with new legitimating criteria to

resolve clashes between their interests and their needs.

45

At the organisational level, our particular focus is on the accounting practices of

SMEs. We narrow our scope to SMEs for two major reasons. First, in Portugal, 99.6%

of companies are classified as SMEs.5 The dominant presence of SMEs in most

countries is well known, as are the concerns about the relevance of IFRS for them (Alp

& Ustundag, 2009). Our study of the actions of SMEs in integrating the SNC into their

day-to-day accounting practices should aid understanding of the achievements of the

institutionalisation process of the SNC at the organisational level. Second, we are

mindful that the benefits of adopting a new accounting system should ideally outweigh

the costs. Several studies have confirmed that the advantages of adopting IFRS are

related to size, thus encouraging greater levels of acceptance by larger companies (e.g.

Cuijpers & Buijink, 2005; Dumontier & Raffournier, 1998; Francis et al., 2008). The

balance between costs and benefits is an especially important issue for SMEs because

many regard themselves as forced to adopt a set of accounting standards that are

oriented to the needs of capital markets and big capital providers (Alp & Ustundag,

2009). Thus, it is important to know how far the incorporation of a SME accounting

standard into the new accounting system would suit smaller companies.

Our empirical data is sourced from interviews conducted with members of the

CNC, the CNC representative on the Accounting Regulatory Committee [ARC] of the

European Commission, the President of the official professional accounting association

in Portugal, OTOC, and four practicing accountants who had SMEs as clients. The

factual content of interview data is corroborated through triangulation with information

drawn from archival sources.

The next two sections present the theoretical framework and the Portuguese

context of accounting regulation. The following sections present research methods,

results and then conclusions.

2. Theoretical Framework

Empirical research has emphasised how practices change and spread through

organisational fields. Tolbert and Zucker (1996) contend that by treating

5 Data are from the Portuguese National Institute of Statistics, 2005.

46

institutionalisation as a qualitative state (in which structures are either institutionalised

or not institutionalised) important questions have been neglected in prior research of

institutional theory. They describe institutionalisation as a set of sequential processes

involving habitualisation, objectification, and sedimentation. They suggest that these

processes vary in terms of their degree of embeddedness in a social system. The higher

the degree of institutionalisation the more deeply patterned behaviours are likely to be

embedded. This leads to greater stability and enhanced power to determine behaviour.

According to DiMaggio (1988), the key to understanding institutionalisation is to

regard it as an ongoing process, rather than as an outcome. Thus, when relationships are

being formed or altered, institutionalisation can be profoundly political and can reflect

the relative power of organised interests. Consequently, actors are not necessarily

constrained to observe passive compliance with institutional pressures, but may engage

in strategic choices (Oliver, 1991; Powell, 1991).

A limitation of institutional theory is its exclusive emphasis on the organisational

field level. This emphasis arises from belief that institutional pressures exerted by

competitors, the state or the professions (and leading to organisational isomorphism)

operate from this field (DiMaggio & Powell, 1983). However, as Scott (2001: 203)

points out “[c]hange processes are best examined by designs that incorporate multiple

levels of analysis. Social actions and structures exist in a dualistic relation, each

constraining and empowering the other.” The process of institutionalisation,

transposition and deinstitutionalisation of organisational practices takes place at

multiple levels in social contexts, including at the organisational level and the economic

and political level (Dillard et al., 2004). Thus, to fully understand the institutionalisation

process we must consider the links between practices at the organisational level and the

organisational field level; the influence of higher social, political and economic levels

on the organisational context; and the role of influential actors.

Dillard et al.’s (2004) framework draws on institutional theory, Weberian notions

of social context, and the dynamics of structuration of social systems which incorporate

change into the institutionalisation process (Giddens, 1976, 1979, 1984). Within this

framework, institutionalisation is regarded to be a process whereby the political nature

of institutional change is recognised and the relative power of organised interests (and

the actors mobilised by it) is incorporated. Dillard et al.’s (2004) framework represents

47

a continual and dynamic process of institutionalisation. This process proceeds in a

recursive cascade through three levels of the social environment – the economic and

political level, the organisational field level, and the organisational level. It incorporates

the power and interests of actors and the influence of historical, social and political

factors in institutionalising, transposing and deinstitutionalising practices (P). The

higher level represents the societal level, where political and economic systems (PE)

establish general, taken-for-granted norms or criteria (CPE) that are disseminated in

society and in the organisational field. The prevailing systems of society and powerful

coalitions influence the enactment of these norms, criteria and practices. At the

organisation field level, the norms, criteria and practices established at the economic

and political level (CPE) are translated into legitimacy criteria (COF) to evaluate whether

action in the organisational field is legitimate. The COF are translated into operating

practices (POF) to provide the legitimating and regulating base for action at the

organisational level. The organisational field includes industry groups and professional

and trade associations.

At the organisational level, organisations can be innovators (I) if they develop

new practices within the parameters set by practices (POF) adopted at the organisation

field level. They can be late adopters (LA) if they adopt the practices of innovators,

even if only ceremonially. Innovative practices can move laterally or vertically. They

can modify legitimate practices and criteria in the organisational field by reinforcing,

revising or eliminating them. New practices (P’OF), perceived as “better practices”, are

adopted by other organisations within the same organisational field. They become

expected (or institutionalised) practices. The new legitimate practices (P’OF) and criteria

(C’OF) at the organisation field level influence the broader macro-level economic and

political environment. Hence, they affect symbolic sense-making criteria (C’PE) by

reinforcing, modifying or eliminating existing norms and practices.

Thus, the dualistic nature and recursive aspect of the institutionalisation process

(resource allocation based on accepted rules, which in turn reinforce extant structures)

involves inverting the cascade as the innovative practices taken by knowledgeable,

reflexive agents within the organisations rise through the three levels. However, not all

organisational fields and all organisations accept the same values, beliefs, criteria and

norms. As a consequence, friction and conflict are also likely to initiate change. Such

change can range from “marginal evolutionary” through to “more significant” or even to

48

“revolutionary” change. Thus, the resource allocation process in a society and the

recognised social order will be affected by the new accepted rules. The Dillard et al.

(2004) model represents a recursive process in which changes can move upwards and

downwards as taken-for-granted norms, criteria, values and beliefs are revised

continually at all levels. Notwithstanding, there is a significant degree of structural

stability enabling and constraining action.

Hooper and Major (2007) proposed a different approach to diffusion processes at

the organisational level. They replaced the two stage process (innovators versus late

adopters) of the Dillard et al. (2004) model by a process in which organisational field

practices (POF) were translated into working practices (P) and, subsequently, were

enacted at the intra-organisational level. This concept of translation assumes that ideas

and practices are interpreted and reformulated during the process of adoption

(Greenwood et al., 2008a). Accordingly, if, during this enactment, organisational actors

experience institutional contradictions (such as inconsistencies among and within

established social arrangements) the consciousness of actors is reshaped and resistance

to imposed institutionalised practices should be expected. This conceptualisation is

informed by Seo and Creed’s (2002) perspective of four sources of institutional

contradictions:

1) inefficiency produced by conforming to institutional arrangements that conflict

with technical activities, notwithstanding the possibility of loose coupling;

2) poor adaptation to external environments because institutional arrangements

make organisations less adaptable over the long run, given psychological resistance to

change and economic interdependencies;

3) multiple and contradictory interconnected institutional arrangements and

prescriptions to which organisations cannot conform in totality; and

4) misalignment between social arrangements that are likely to reflect the ideas

and goals of more powerful constituents and the interests of diverse actors who enact,

inhabit and reproduce those social arrangements. These contradictions prompt change in

the collective consciousness of actors (praxis) and provide alternative logics of action

and resources that are used in the process of institutional change.

49

In the Dillard et al. (2004) framework the theoretical context of the

institutionalisation process incorporates Weber’s axes of tension – representation,

rationalisation and power. These specify the context of institutional analysis and

coincide with the notions of signification, legitimation and domination in structuration

theory. Signification structures (symbolic representations) and legitimation structures

(norms, values, laws and regulations) are associated with rules that provide meaning

and legitimating criteria to evaluate organisational actions. Domination structures are

associated with human and material resources. The control and mobilisation of

resources facilitates or impedes actions, and supports or delays the development of

signification and legitimation structures (duality of structure). Changes in these social

structures are the consequence of reflexive, knowledgeable human action – something

which is enabled and constrained by the existing structures. According to Dillard et al.

(2004: 521) “[i]nstitutions can be seen as manifestations of mutually reinforcing

signification (representations) and legitimation structures (values and norms)…

reflected and sustained over time by the allocation and accumulation of resources

associated with their enactment by agents.” Recursive interaction between rules and

resources supports the embedding and implementation of institutional practices,

reinforcing each other. As a consequence, the loss of one leads to deinstitutionalisation,

such that the symbolic representations or values without resource allocation are

eventually discarded.

Analysis of the evolution of signification, legitimation and domination structures

in the organisational field of accounting during the past century reveals that the

rationale of accounting has changed. Initially, accounting was concerned primarily with

measuring wealth and income, recording economic transactions, and properly preparing

accounting reports. It was bounded by a set of conventions such as conservatism,

consistency, historical cost valuation and matching. The development of stock

exchanges, evolving patterns of investments, and increased scrutiny of financial

statements in the second half of the 20th century are some events that connected

accounting and economic decision-making (see Young, 2006 for a deeper review). This

new trend constructed the financial statement user as a rational economic decision-

maker who required value-relevant information, made timely loss recognitions, and had

less earnings management (Barth et al., 2008). Additionally, the collapse of Enron in

2001 boosted the shift from highly detailed rules-based US accounting standards to

50

more general principles-based standards that established approaches to dealing with new

situations (Bhimani, 2008). The evolution of accounting representation schema towards

utility of financial information and to a principles-based approach allowed IASB

standards to become a belief system that gained influence as more people accepted them

as common knowledge and the normal way of doing accounting (Rodrigues & Craig,

2007). The IASB acquired a “soft” form of (normative) power expressed through

membership and ability to promote a dominant logic (Suddaby et al., 2007). This social,

political and economic context, within which the international accounting

harmonisation process has evolved, has defined the structural boundaries for action in

the accounting arena in the EU, member-states, professional associations, and individual

organisations.

3. The Portuguese Accounting System

The first Portuguese official accounting plan was established in February 1977

(Decree-law 47/77). Consolidated and individual financial statements were required to

comply with a commercial code, tax laws, stock market regulations and an official

accounting plan. The Portuguese accounting standards setter (the CNC) was established

in 1977 also. The CNC comprised a president, a general council and an executive

committee. Members were drawn from the accounting and audit professions, users of

financial statements (including government departments) and higher education

institutions. The Portuguese model of accounting regulation was inspired by the French

model. Thus, its standard-setting body (which was attached administratively and

financially to the Ministry of Finance) had the power to develop accounting standards

that were issued as decrees or decree-laws by the Portuguese government (Ferreira,

1998). Consequently, pronouncements of the accounting profession had no formal

status. The only source of financial accounting standards was the written law.

Before the SNC was adopted, the Portuguese accounting system was classified as

one of the Continental cluster of code law-based countries in which accounting typically

was regulated in detail (Jarne Jarne, 1997; Mueller et al., 1997; Nobes & Parker, 2004;

Salter & Doupnik, 1992). However, since the establishment of the POC, the Portuguese

accounting system has had to change to comply with accounting directives of the EU.

To address the insufficiencies of the POC, the CNC also has issued several accounting

51

standards that were inspired by IFRS. As these IFRS-inspired standards came into force,

French influence began to wane (Ferreira, 1998) and the POC benefited by being kept

reasonably up to date with international accounting practice. Nonetheless, before the

implementation of the SNC, Portuguese accounting practices were oriented towards

legal compliance. They were characteristically opaque with low levels of disclosure;

and emphasised historical cost valuation, prudence and conservatism. The traditional

reliance of Portuguese companies on debt financing (rather than on capital markets) and

the alignment of accounting and tax reporting meant that financial statements were

prepared primarily to meet the needs of banks and the State.

Historically in Portugal, the profession of accountant has been separated from that

of auditor. Two distinct bodies officially represent Portuguese accountants and

Portuguese auditors, despite the possible overlap in membership between them. The

practice of accounting, and the right to use the title of official accountant, is restricted to

the members of the OTOC. OTOC members contract with their clients to maintain

accounting records and prepare financial statements. By law, the annual accounts and

tax returns of all companies must be signed by an accountant. OTOC is under the

jurisdiction of the Ministry of Finance. The auditing profession consists of official

auditors who are registered in the Ordem dos Revisores Oficiais de Contas [OROC -

Order of Official Auditors]. This officially recognised body is under the jurisdiction of

the Ministry of Justice. The obligation to be audited is compulsory for joint stock

companies, limited companies that exceed specified size limits, financial institutions

and insurance companies. OROC and OTOC are members of the CNC, thereby

allowing them to participate in the development of accounting standards.

The SNC came into force through Decree-law 158/2009 (13 July), with

mandatory effect from 1 January 2010 onwards. Listed companies shall apply IFRS in

individual accounts (in addition to consolidated financial statements). Unlisted

companies preparing consolidated financial statements can opt to adopt IFRS in legally

audited consolidated and individual accounts for a minimum period of three years.

Other unlisted companies are required to apply the set of 28 NCRF. These are similar to

IFRS. An exception is the financial accounting reporting standard 26 Environmental

Matters that is based on a European Commission Recommendation of May 30, 2001.

Another exception is the accounting standard dealing with financial instruments that

was simplified considerably. Companies can use IFRS endorsed by the EU directly

52

when the SNC standards do not regulate a particular subject. Companies under the

limits established by the government have to apply a single standard, the NCRF-PE.

This is based on the accounting standard for SMEs, issued by the IASB. Nonetheless, if

financial statements of these companies are legally audited, they have to apply the set of

28 (NCRF) standards.

The final version of the SNC contains a conceptual framework, 28 accounting

standards (NCRF), two interpretative standards, and a specific accounting standard for

SMEs (NCRF-PE). All are similar to the translations provided by the EU of endorsed

standards issued by the IASB. The SNC also provides model financial statements and a

chart of accounts.

Adoption of the SNC changed regulations concerning the functioning of the CNC

and OTOC. The CNC became smaller and a new President was appointed. Within the

new structure, OTOC became the only accounting body to represent the accounting

profession (contrary to the prior structure that recognised other associations). OTOC

was elevated in status to Order6 of Official Accountants.

Since the SNC was approved there have been two important developments in

Portuguese accounting regulation concerning SMEs. First, was the change of the limits

under which companies were allowed to use the NCRF-PE. Decree-law 158/2009 (13

July) established that this standard could be used by companies which were under two

of the three following limits: total assets €500,000; total sales and other income

€1,000,000; and number of employees 20. However, in December 2009 the Portuguese

Communist Party submitted a proposal in Parliament to amend this law.7 This proposal

harmonised the previous three limits with those in the Code of Commercial Companies

by increasing them to €1,500,000/ €3,000,000/ 50. This proposal was approved by

Decree-Law 20/2010 (23 August), allowing many more companies to use the NCRF-

PE. The proposal cites complaints of business associations about the difficulties SMEs

were having in preparing to adopt the SNC (especially the high costs of necessary

software and training).

The second major development in the regulation of Portuguese SMEs was the

creation of an additional level of accounting regulation for micro-entities. European 6 “Order” is the most important social status of a profession in Portugal. 7 See www.pcp.pt/sistema-de-normalizacao-contabilistica-0 (accessed April 2011).

53

Directive 2009/49/EC (18 June) encouraged member-states to reduce administrative and

reporting burdens on SMEs. The Portuguese government responded by issuing Decree-

law 35/2010 (2 September) to relieve companies of the obligation to adopt the SNC if

they were under two of the following three limits: total assets €500,000, turnover

€500,000 and number of employees 5. From 1 January 2010 these companies were

permitted to adopt a specific regulation for micro-entities that establishes basic

recognition, measurement and disclosure requirements, and a code of accounts and

simplified financial statements. When this law was proposed initially (Project of Law

200/XI) it exempted these companies from all accounting obligations, and the limits

were 400,000/800,000/10.8 However, the major professional accounting associations,

OTOC and Associação Portuguesa dos Técnicos de Contabilidade [APOTEC -

Portuguese Association of Accountants] lobbied strongly against this proposal. In a

parliamentary hearing, OTOC drew attention to the increased difficulties that SMEs

would encounter in seeking loan capital in the absence of financial statements that

validated their net income and net equity. They argued that SMEs could be hampered by

subjectivity in calculating taxes and that this could retard the quality of financial

information provided by small companies by several decades (OTOC, 2010). The non-

official accounting association, APOTEC, argued that the administrative burden on

SMEs was related more to tax obligations than to accounting obligations (APOTEC,

2010). The final version compelled micro-entities to disclose their balance sheet,

income statement, and a simple version of their notes.

4. Research Methods

A qualitative research approach was used to acquire an in-depth understanding of

events leading to adoption of the SNC. The use of semi-structured interviews to collect

data is appropriate if, as here, their purpose is to develop depth and well-rounded

understanding of a social process, social change, social organisation or social meaning

(Mason, 2002; Saunders et al., 2003). The interviews were conducted and transcribed in

Portuguese (the mother tongue of interviewees and interviewer). Interview transcription

was in Portuguese to avoid distorting idiomatic terms and particular meanings.

Interview transcripts were sent to respondents for them to correct any errors and

8 See http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?ID=35173 (accessed April 2011).

54

misinterpretations of what was stated. This procedure also provided the interviewees

with the opportunity to volunteer additional information and to summarize information.

The process reinforced the data by having participants confirm what was said.

Translation of interview transcripts occurred after the interviewees had confirmed

correctness.

To elicit information at the political and economic level, we conducted two

interviews with various members of the CNC. The first interview, in June 2008, was

with the President of the CNC (interviewee A) and two other members of the Executive

Commission (interviewees B and C). The second interview, in August 2008, was with

the President of the Executive Commission responsible for coordinating the workgroups

that developed the new accounting standards (interviewee D); and interviewee B (who

also participated in the first interview). Each interview lasted approximately 90 minutes.

Their specific purpose was to determine the main reasons for the development of the

SNC; to understand how the signification, legitimation and domination structures

enabled and constrained actions of the CNC; and to identify the main institutional

constituents influencing the progress (and final content) of the SNC.

In July 2008, an interview was conducted with the representative of the CNC on

the ARC of the European Commission (interviewee E). The ARC provides opinions on

European Commission proposals to adopt (endorse) IFRS. It is composed of

representatives from all member-states. The main purpose of the interview was to assess

the degree of political influence on the functioning of the CNC and to evaluate how the

SNC reflected changes in legitimation and signification structures in the EU in previous

years. The interview lasted approximately one hour.

At the organisational field level, a two-hour interview was conducted with the

President of OTOC (interviewee F) in March 2011. The purpose was to understand the

role of OTOC in establishing new operating practices that would provide the

legitimating base for actions at the level of accountants; the implications of the SNC for

the accounting profession; how the legitimation and signification structures evolved due

to the SNC; and how OTOC influenced the development of the SNC.

At the organisational level, interviews were conducted in March and April 2010

with four accountants who had SMEs as clients (interviewees G, H, I and J). The

purpose was to understand how accountants prepared to adopt the SNC; the

55

implications of the new system for their legitimation and signification structures; and

the influence of isomorphic pressures in institutionalising the new accounting practices.

The interviews were of one hour to one and a half hours in duration. The interviewees

differed in terms of age, client turnover, and main activity of clients. Two had

professions other than accounting.

Table 2.1 identifies all interviewees.

Table 2.1

Identification of Interviewees

Interviewee

President, CNC A Member of the Executive Commission, CNC B Member of the Executive Commission, CNC C President of the Executive Commission, CNC D Representative of CNC on the ARC E President, OTOC F Partner of an accounting firm. 80 clients (turnover < €30,000,000) in all

sectors. Some are in agriculture, but most are in the commercial sector. A teacher in higher education. Age 49.

G

Partner of an accounting firm. 22 clients (turnover < €500,000) in the services sector, except for one in the construction sector. Age 36.

H

Partner of an accounting firm. 40 clients (turnover < €300,000) in the textile and services industries. A trainee in a firm of official auditors. Age 34.

I

Partner of an accounting firm. 38 clients (turnover < €1,000,000) in the services sector exclusively. Age 68.

J

To address issues of data reliability and data validity, we followed the

methodological approach to interview conceptualisation and operationalisation

proposed by Saunders et al. (2003), Quivy and Campenhoudt (2005) and Mason (2002).

Information about the context of the respondents’ organisations was gathered in

advance of the interviews to help demonstrate credibility and gain the confidence of

interviewees. A list of interview topics was provided to participants in advance. This

promoted validity and reliability by enabling interviewees to prepare the information

being requested. During the interviews a neutral tone of voice was used. Long questions

and theoretical concepts were avoided. The interviewees were given time to develop

their responses. Whenever necessary, answers were read back to the interviewee in

summary form to test for correct understanding. A conscious effort was made not to

influence the views of respondents with personal perspective of the interviewer.

Several other sources of data were used to collect evidence concerning the process

of developing and implementing the new Portuguese accounting system. These included

56

official documents, press articles, transcripts of press conferences, official speeches of

members of the Portuguese government, and websites texts (of professional

organisations, of the Portuguese parliament, of political parties and the European

Commission). These data provided supplementary evidence that facilitated comparison

and corroboration (triangulation) of the factual information stated during the formal

interviews.

5. Results

Here we analyse the evolution of the three dimensions of contextual change:

signification, legitimation, and domination. We do so for the three levels of social

context (as suggested by Dillard et al., 2004) to help understand the relational dynamics

that flow from the economic and political level to the organisational field level and to

the organisational level. The influence of isomorphic pressures on the development of

new structures is considered also. At each level, we summarize the responses of

interviewees under two headings: (a) changes in signification, legitimation and

domination structures; and (b) isomorphic pressures.

5.1 Economic and Political Level

5.1.1 Changes in signification, legitimation and domination structures

The creation of the new accounting system began in 2002. In 2003, the CNC

website published a projected accounting model (representing the probable future of the

Portuguese accounting system). The structure was similar to that of the SNC. As noted

by interviewee A:

In 2003, the CNC considered the adoption of international accounting

standards because the POC was becoming insufficient and several other

European countries (such as Spain) were changing their national accounting

laws to align with IFRS.

In 1995, the Commission of the European Communities published a report titled

“Accounting harmonisation: A new strategy vis-à-vis international harmonisation”

57

(European Commission, 1995). This acknowledged the inadequacy of European

accounting directives in effecting accounting harmonisation and expressed support for

IASB standards. In the EU, the importance of IFRS was reinforced by the EU’s

acceptance (seemingly as a taken-for-granted fact) that financial information which

accorded with globally accepted accounting standards was superior (Rodrigues & Craig,

2007). After 1995, the EU increased its funding support for IASB activities, thereby

reinforcing these legitimation and signification structures. Interviewee E (the SNC

representative on the ARC) confirmed that:

Over the past years the funding of IASB has been widely discussed in meetings

of the ARC. The EU has paid substantial amounts to IASB, due to the adoption

of IFRS by member-states.

The minutes of ARC meetings show how resource allocation to these new structures

was an important matter for the European Commission.9

The change of norms and values (legitimation structures) occurred with the

modification of European accounting directives to accord with IASB standards. This

provided new legitimating grounds for action by member-states (CPE). In turn, this

dynamic flowed to accounting regulations issued by those member-states who changed

their national accounting system to IFRS. In 2002, the European Commission issued

Regulation 1606/2002, requiring all EU-domiciled companies listed on stock exchanges

within the EU to prepare their consolidated financial statements in accord with IFRS by

2005. To deal with the ensuing lack of comparability of financial information among

national companies (listed versus unlisted companies), member-states began to redefine

their accounting regulations for unlisted companies. These reflected new signification

and legitimation structures in the EU.

Interviewee B explained:

After Regulation 1606/2002, the decision to move forward to IFRS was

consensual among members of the CNC, even though the existing differences

between the POC and IASB standards demanded significant preparation

efforts by Portuguese accountants. It did not make any sense to have

9 See http://ec.europa.eu/internal_market/accounting/committees/arc_meetings_en.htm (accessed April 2011).

58

significantly different accounting systems applied by listed and unlisted

companies.

In Portugal, political criteria were translated into a new accounting system (COF)

by the CNC. This occurred at the political and economic level rather than at the

organisational field level. A similar process was observed in the telecommunications

industry by Hooper and Major (2007). Even though the new criteria in the accounting

field (the SNC) were established at the political and economic level, new operating

practices (POF) had to occur at the organisational field level (as a result of the training

provided by professional accounting associations).

The CNC was aware that implementing the SNC would require intensive

professional training. Interviewee B noted that “the major challenge of the adoption of

the new accounting system is for accountants.” As Interviewee C observed with regard

to companies which had to apply the SNC:

… because many do not have complex operations they will not adopt the more

complex standards. However, the accounting professionals have to know both,

the simple and the complex standards, to decide when to apply or not apply

each standard.

Inconsistency between the new SNC accounting standards and organisational

interests would made it inevitable that organisational doubts arise about the legitimacy

of institutional expectations (Oliver, 1991). Accordingly, the CNC and the Portuguese

government were engaged in achieving a high degree of social consensus concerning

the new proposed accounting system. This was a legitimation process similar to the

concept of theorisation referred by Tolbert and Zucker (1996) in which a new structure

is invested with general cognitive and normative legitimacy. In the theorisation process,

an organisational problem is defined, which involves public recognition of a consistent

pattern of dissatisfaction with characteristics of the old structure, and then a particular

form of structural arrangement is provided to solve the problem on logical or empirical

grounds. In 2007, when the project was announced publicly, the CNC explained the

international context and the international accounting harmonisation process, the

insufficiencies and disadvantages of the existing accounting system, and the merits of

the SNC for all types of companies (CNC, 2007). In April 2008, the CNC began the

“due process” phase for approval of the SNC by presenting the new accounting system

59

for public evaluation. At this time, the Minister of Finance and the Secretary of State for

Fiscal Affairs emphasised the problems of the old system and the advantages of the

SNC. The Minister of Finance (2008: 2) noted that the SNC model “[w]ill be an

additional vehicle to modernise our economy because our companies and economic

agents will be better able to integrate into the new economic world context.” The

Secretary of State for Fiscal Affairs (2008: 5) further reinforced this by asserting that

“[t]he new accounting strategy is appropriate in the actual context of

internationalisation, trade liberation and economic globalisation… the SNC is itself a

source of competitiveness…”. According to interviewee E:

The claims of listed companies about the costs of maintaining a dual

accounting were an important incentive to the decision to proceed with the

SNC that was announced in a press conference in 2005 by the Ministry of

Finance.

To avoid criticism that the SNC favoured listed companies by imposing an

accounting model that was inappropriate for the majority of Portuguese companies, the

discourse also sought to guarantee the adequacy of the new model for SMEs. The

Minister of Finance (2008: 6) acknowledged the different characteristics of Portuguese

companies and stated that “[t]he SNC took into account their different financial

information needs. These range from the entities with securities listed, with increased

demands, to micro-entities, that only need a simplified system.” The Secretary of State

for Fiscal Affairs (2008: 7) repeated this statement word-for-word in his discourse, as

well. Both were alert to the importance of attaining consensus about the new accounting

standards among all interested parties if future compliance with these standards was to

be enhanced.

With respect to the domination perspective, the EU controls the allocation of

significant funds to member-states. Thus, the Portuguese government decisions are

constrained by choices taken by the EU. In turn, the CNC is resource-dependent on the

Portuguese government. This chain of power and domination reinforced the

development of new legitimation and signification structures at a national level

consistent with CPE. As such, it accords to the recursive aspect of the institutionalisation

process suggested by Dillard et al. (2004).

60

5.1.2 Isomorphic pressures

In 2006, the Portuguese government exercised coercive influence on the content

of the SNC by forcing the introduction of a specific standard for SMEs. At the

beginning of 2006, the CNC met with the Secretary of State for Fiscal Affairs to present

the structure of the new accounting system. Interviewee D explained that at this

meeting:

The Secretary gave explicit instructions about the incorporation in the new

accounting model of a specific accounting standard to be applied by small and

medium-sized enterprises.

A standard for SMEs was not included in the initial SNC project. The

representative of the SNC on the ARC (interviewee E) confirmed that from 2006 the

development of the new accounting system was monitored closely by the Secretary of

State for Fiscal Affairs. In the context of the SNC, political influence was noted also in

the establishment of quantitative boundaries distinguishing companies that were

required to use all standards from those who were required to use only the SMEs

standard. Interviewee E noted that:

The Portuguese government does not intrude on technical issues. However, the

Secretary of State for Fiscal Affairs always analyses the economic

consequences of accounting standards and suggests changes, if necessary.

This is consistent with the view that the State is still very influential in shaping

institutional environments in modern societies (Scott, 1987).

The incorporation of structuration theory in the Dillard et al. (2004) model

recognizes the importance of agents’ actions in influencing outcomes at each level. One

primary agent at the political level, who influenced the outcome of the Portuguese

accounting system, was the Minister of Finance. For five years before joining the

government in July 2005, he was President of the Directing Board that regulated the

Portuguese stock exchange – Comissão do Mercado de Valores Mobiliários [CMVM -

Securities Market Commission]. He was also the President of the Executive

Commission of the IOSCO for four years, President of a group of experts of the

Committee of European Securities Regulators, and President of the Regional European

61

Committee of the IOSCO. Such experience with listed companies was a normative

influence on the Minister of Finance: he regarded IASB standards to be the appropriate

standards. This is consistent with the observation of Carruthers (1995: 317) that “[t]he

involvement in professional networks, influences how professional personnel undertake

their activities.”

As expected, in 2005, when the CMVM complained about the high costs incurred

by listed companies and the problems of dual accounting, the Minister of Finance

supported their interests. In December 2005, a press release by the Ministry of Finance

(2005) after the Minister of Finance met with the Council of the CMVM, announced

that “[t]he Ministry of Finance will study the possibility of the exclusive use of IFRS …

to avoid the necessity of keeping two sets of accounts by listed companies” and that a

work group would be created to adapt the company income tax code so that IFRS could

be used by all companies. This process revealed how listed companies were able to

influence Portuguese accounting regulation through pressures applied by the CMVM.

They found an appropriate receptor for their claims (the Minister of Finance) and an

appropriate expedient (the CMVM).

Another normative pressure was exerted through the Executive Committee of the

CNC. This committee is the main body responsible for developing regulatory changes

to the Portuguese accounting system. OROC had one delegate representing the audit

profession on the Executive Committee. Interviewee A observed that “the CNC did not

feel any kind of pressure from OROC to develop the new accounting system based on

IFRS.”

However, participant B observed that:

Members of OROC have always shown appreciation of IASB standards. OROC

is very supportive of IFRS. Even if it was his personal opinion, the President of

OROC mentioned several times publicly that IFRS should be adopted by all

types of companies.

Further, the main profession of eight of the thirteen members of the Executive

Committee of the CNC (62%) was that of official auditor. Interviewee E noted that:

62

Several members of the executive committee have worked in multinational

companies that report in accordance with IFRS, others are official auditors of

multinational companies, and of listed companies, and one represents the

CMVM. All these members are very familiar with IFRS and have supported

their adoption.

Transmission of knowledge inside the professional network of official auditors,

and awareness of the discourse of the international accounting harmonisation process by

several members of the Executive Committee, were fundamental in initiating normative

pressures to impose these standards on unlisted companies. For these members, IFRS

were already part of their grounds for legitimating. Therefore, at this level, official

auditors were also influential agents in the development of the new accounting system.

The Big-four companies were not influential in this process at the political level of the

Portuguese context. Nonetheless, interviewee C noted “multinational audit companies

do not influence the activity of accounting boards at a national level. They influence the

IASB directly.” Their influence at a higher level is consistent with Suddaby et al.’s

(2007) argument that representation of the Big-four on the IASB board, and the

importance of Big-four donations to the IASB, lead these firms to occupy a strategic

structural position in shaping accounting regulation.

Mimetic isomorphism influenced the development of the SNC also. The President

of the CNC (Interviewee A) acknowledged that the decision of the CNC was influenced

by a concerted movement to adopt IFRS in the national accounting regulations of

several other member-states. However, he acknowledged that “it was not the major

reason for the development of the SNC.”

Institutional pressures differ in importance to organisations. They depend on the

variety of rewards arising from organisational conformity with those institutional

pressures (Oliver, 1991). In the Portuguese case, coercive and normative pressures

seemed to be more important than mimetic pressures in influencing the development of

the new legitimation structure. This is consistent with the idea of different

interpenetration of organisations by the institutional environment (Dillard et al., 2004).

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5.2 Organisational Field Level

5.2.1 Changes in signification, legitimation and domination structures

To understand the actions of OTOC in establishing the SNC it is important to be

familiar with the context in which most Portuguese accountants operate. Usually, large

companies have their own accounting department or individual accountant. However,

smaller companies are usually managed by owners, without any support structure for

investment or financing decisions. Smaller companies usually engage an external

accountant. In recent years, before granting credit, banks have begun to require financial

statements to be submitted by small companies, in addition to information about the

private assets of owners. Thus, smaller companies who used accounting information

traditionally for tax purposes were now asked to provide such information for funding

purposes also. These SMEs comprise the majority of companies in Portugal.

Consequently, most of the 31,000 official accountants registered to practice in OTOC

have SMEs as clients. The President of OTOC (interviewee F) indicated this, and the

role of accountants, with respect to SMEs:

SMEs are the main business for accountants. SMEs do not have a structure to

support management. Therefore, accountants should have a close relationship

with the owners, based on trust and partnership. Accountants should be

multifaceted and support business decisions of managers with useful

information. To do so they need to have great knowledge of the business, its

needs and growth perspectives.

When the Secretary of State for Fiscal Affairs contacted the President of OTOC in

2008 to ascertain OTOC’s position regarding the SNC, the President saw this as an

opportunity to develop the accounting profession. Because of the grounding of the SNC

in a principles-based approach (contrary to the rules-based approach of the POC), the

SNC demanded a much deeper knowledge of the environment in which the accounting

rules are applied by accountants. The President noted that the SNC

… adds a new dimension to accounting: it encourages integration of the

accountant with the reality he is accounting for, and with decisions of

management. This results in much more active and conscious actions by

accountants…

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The new accounting system accorded with (or accentuated) representational

schema of OTOC by valuing the integration of accounting practices with business

management practices. The SNC reinforced the evaluatory professional criterion of

usefulness of accounting information and the professional expectation that there should

be a partnership between accounting and business management.

The legitimating grounds for accounting practice include regulation of quality

control, of number of training unit credits, of specialist practitioners in several areas of

accounting and taxation, and a code of ethics. According to the President of OTOC, the

SNC changed none of the rules because it contained generic considerations (regarding

the practice of accounting). Nonetheless, objective representations of accounting quality

are reflected in the Control Guide and in the Form of Conclusions of Quality Control.

These are used in inspections of quality control made by OTOC and have specific

measures of quality (e.g. with respect to facilities, academic degrees held by employees,

equipment, document organisation, accounting practices). The President stated that

these documents will be changed during 2011 to include assessment of new practices

implied by the SNC (e.g. professional judgment or documentary support of fair value

estimations).

Funding of OTOC is provided exclusively by its members, through biannual fees

or payments for professional training. Since 2007, all accountants have been required to

attend mandatory training. This is an important source of finance for OTOC.

Accordingly, OTOC is very dependent on its members for resources. However, it is

important to acknowledge that the Ministry of Finance demands that all companies have

their financial statements and tax declarations signed by an “official” accountant. The

“official” designation implies compulsory membership of OTOC10, and consequently,

payment of fees and professional training. This leads to a fundamental resource

dependency on the State. However, over the years, the State has also benefited from the

collaboration of OTOC in processes of tax administration and tax clearance. In the

opinion of the President:

OTOC has influenced the government in significant ways … it was OTOC who

pressed the government to proceed with the dematerialisation of tax forms.

10 Imposed by the Decree-law 452/99 (5 November) which approved the Statutes of the Chamber of Official Accountants. This Decree-law was changed by the Decree-law 310/2009 (26 October) which approved the Statutes of the Order of Official Accountants.

65

This resulted in information that was more valid and less expensive for

companies and for tax administration.

This collaborative relationship enabled OTOC to negotiate some concessions

from the government during the establishment of the SNC. In 2008, when the Secretary

of State for Fiscal Affairs contacted the President of OTOC, both were aware of the

importance of the role of OTOC if the SNC was to be successful: OTOC needed to

provide the necessary supporting professional training. The President of OTOC argued

that because adoption of a new accounting system posed so many challenges to the

accounting profession, the social status of the profession should be raised from

“Chamber” to “Order.” This strategy, in which an organisation strives to exact

concessions from an institutional constituent, is described by Oliver (1991) as

bargaining. The President of OTOC acknowledged that

The SNC was an opportunity to elevate the status of the profession. The SNC

required accountants to be better prepared. The expertise requirements of the

SNC gave more importance to the accounting profession.

OTOC fulfilled its part of the agreement by providing extensive professional training

courses regarding IFRS and the SNC. These courses grew from 3 in 2007, to 5 in 2008,

to 26 in 2009, and to 37 in 2010.11

The SNC accounting model implied a different accounting paradigm for the

accounting profession – one that is principles-based. It required additional professional

judgment, high levels of disclosure, separation between accounting and taxation rules, a

new terminology, and a new way of preparing accounting information. The training

courses offered Portuguese accountants comprehensive understanding of the accounting

practices implied by the new accounting system. As Greenwood et al. (2002) have

observed, professional accounting associations are fundamental in the process of

collectively redefining the institutional logic underlying the appropriate way of

becoming an official accountant. The mandatory nature of the professional training

provided by OTOC ensured that it played a vital role in establishing the new accounting

practices and a new institutional logic.

11 Information available at www.otoc.pt (accessed March 2011).

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Changes at the organisational field level were influenced by interests and agency,

and developed as a consequence of the dual forces of agency and structure, rather than

as the simple execution of existing scripts (Beckert, 1999; Dillard et al., 2004). This

leads us to a deeper understanding of the actions of the President of OTOC. Recent

developments in the accounting profession worldwide reveal a waning relationship

between the State and professional associations (in which the State supports coercive

normative actions of professional associations). Big-four accounting firms have

outgrown the regulatory boundaries of professional associations by becoming

multinational and by providing services to large and powerful corporate clients

(Suddaby et al., 2007). Formerly, accounting associations have been the primary actors

on behalf of the profession. However, they are now faced with the prospect of the

domination of accounting regulation by multinational accounting firms (Chua & Taylor,

2008; Suddaby et al., 2007). The President of OTOC acknowledged that

A major concern for OTOC was the dependence of the International

Federation of Accountants [IFAC] on multinational auditing firms. For the

IFAC to be representative of the profession worldwide it has to have a lot more

independence, must be more transparent in decision-making, and have much

more scientific justification for its positions.

With respect to the context of the actual structures of the accounting profession,

the President of OTOC sought to elevate the social position of the profession. OTOC

would benefit too from such endeavour through a higher status in international

organisations to which it belongs (e.g. IFAC). Thus, the change was instigated by

institutional contradictions in the interests and needs of agents that were served poorly

by existing social arrangements (Seo & Creed, 2002).

Additionally, the influence of OTOC and APOTEC in establishing an accounting

obligation for micro-entities points to the important role the interests of agents in the

organisational field can play in establishing laws and regulations at the political and

economic level. Accordingly, professional accounting associations were influential at

the organisational field (as Dillard et al. (2004) predicted) and were a primary agent at

the political and economic level too.

New legitimating criteria (COF) were supplied by the CNC at the political level.

Operating practices (POF) were disseminated by OTOC and by other professional

67

accounting associations. Nonetheless, interrelationships between the political and

economic level and the organisational field level were important in establishing the final

version of the SNC. During the due process phase in 2008, OTOC formed a team of

experts to review the proposed version and suggest important changes. The President of

OTOC explained that

With respect to the SNC, the accounting profession influenced accounting

regulation greatly, mainly through the document prepared by our work group.

Almost all suggestions were accepted.

The Dillard et al. (2004) model predicts a top-down institutionalisation process in

which operating practices (POF) at the organisational field level are a function of the

organisational field criteria (COF). The latter, in turn, are a function of the societal level

criteria (CPE). In the Portuguese case, organisational field practices were considered in

establishing the new accounting system. This occurred through the membership of

OTOC and OROC in the CNC, and through the participation of these bodies in the due

process. In the particular case of OTOC, the operating practices of the organisational

field influenced the document issued by OTOC experts. In turn, this influenced the

organisational field criteria the SNC established at the economic and political level also.

Thus, there is an opportunity to improve the Dillard et al. (2004) model by predicting an

earlier reversion of the cascade of the institutionalisation process. Change processes are

not initiated only at the organisational level by knowledgeable, reflexive agents; and by

conflicting criteria between values and norms of society and organisations. Change can

occur also in earlier stages when legitimate practices of agents, acting at the

organisational field, need to be better accommodated in the newly established

legitimating criteria.

5.2.2 Isomorphic pressures

At the organisational field level, only coercive pressures stemming from the State

were identified as influencing actions of OTOC with respect to the SNC. The indirect

resource dependence of OTOC on the Ministry of Finance made it unlikely that OTOC

would oppose the SNC. Additionally, OTOC was consulted about its official position

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when the SNC was almost in its final version.12 Thus, even if OTOC did not agree with

features of the SNC, and preferred to adapt the old accounting system to IFRS (as

occurred in Spain and France) it would be very difficult to enforce such a position.

Some prominent individuals in the accounting profession argued publicly against

the SNC on normative grounds. The President of OTOC stated that he

… paid attention to the opinions of these mentors, because their opinions are

relevant. However, several academics were supportive of the new model. They

understood very well the international context and what led to these changes.

The President said that none of these opinions was decisive because he was not easily

influenced:

OTOC only cares about managing and enhancing the accounting profession.

OTOC has goals and seeks to achieve these goals. Though we hear the parties

we are not hostage to their opinions. The decision is ours.

Such a view reinforces Greenwood et al.’s (2002) contention that professional

associations have an important role in reconciling competing interests and in

constructing and maintaining intra-professional agreement over behaviour.

No significant mimetic influences were identified at the organisational field level.

The specific features of the SNC and the differences between the option taken by

Portugal when compared with options taken by Spain or France (who chose to adapt

their accounting systems) prevented OTOC from being influenced by actions of foreign

professional organisations.

5.3 Organisational Level

5.3.1 Changes in signification, legitimation and domination structures

The process of institutionalisation begins with the introduction of new structural

arrangements. Accordingly, it is necessary to explore the formalisation of such

arrangements in the form of policies and procedures (“habitualisation”). This will help

12 It was changed later in response to the comments received during the due process phase.

69

to assess the extent to which new structural arrangements have been internalised by

organisations or whether organisations are involved in a legitimation exercise.

Three of the four accountants interviewed had a client list comprising only small

companies. Only interviewee G dealt with auditors on a regular basis. Consequently,

only interviewee G has adopted the set of 28 NCRF standards. All others have chosen to

adopt the NCRF-PE standard for SMEs. Interviewee I adopted the SMEs standard in all

of his companies because “… it is simpler to work with. For small companies,

accounting is not a management instrument. It is used exclusively for tax purposes.”

All interviewees agreed that the application of the SMEs standard is very similar

to the requirements of POC, despite more information being required in the notes.

According to Interviewee H “this was the main reason for choosing this standard.” The

main difficulties identified by accountants H, I and J were related to specific accounting

issues (dealt with satisfactorily under the old accounting system) which had to be re-

analysed to decide how to deal with them under the new regulation (e.g. deferred costs,

accrual principle). Another important difficulty was how to value tangible assets that

had been totally depreciated in the POC accounting system but were still in use. Solving

these situations involved professional judgment, full understanding of the new

conceptual framework, and dealing with fair value − all were difficult matters for these

accountants.

In small accounting firms, the legitimating grounds and the representational

schemes did not reflect the new legitimating criteria and organisational field practices of

higher levels of the social context. Accountants were now operating in a new societal

context where legitimation structures required the implementation of a principles-based

accounting system and a deeper application of the concept of utility of financial

information. Accounting needed to be timelier, value-relevant and less conservative.

Institutionalisation of the SNC at an organisation level involved establishing new

practices by accountants to link external legitimating criteria with internal routines and

behaviours (Tolbert & Zucker, 1996). However, this process implied changing their

representational schema and their legitimating grounds. At the time of the interviews

this had not occurred.

There are two main reasons for the limited effects of the adoption of the SNC at

the organisational level. First, is the conflict between adoption of the SNC and the needs

70

and goals of these accountants. As result, accountants avoided a de facto application of

the new accounting system (Oliver, 1991). The process of transition had high costs

(especially for training and software). Accountants were unable to increase their service

fees to compensate for these costs because of the general economic stringencies flowing

from the global financial crisis of 2008. In addition, institutionalisation and the required

“[d]evelopment of some degree of social consensus among organizational decision-

makers concerning the value of a structure” (Tolbert & Zucker, 1996: 182) had not been

achieved among accountants. For all accountants interviewed, the adoption of the SNC

was not deemed worthwhile for SMEs. Interviewees I and J argued that the SNC should

not be applied by SMEs. Interviewed I explained that:

Because these companies do not use accounting information for decision-

making and do not have a set of users of their financial statements, it takes a

lot of work to adapt their accounting. In the end it is not worthwhile.

The main users of the financial statements of these firms are the State and banks.

Consequently, adoption of an accounting system oriented to a diversified set of users,

and requiring extensive disclosures, is inappropriate to them. According to Oliver

(1992), deinstitutionalisation of practices usually involves functional pressures. For

accountants I and J, adoption of the SNC would render accounting information less

reliable and less comparable than the POC, even though the financial statements have

more information (in the notes). Interviewee J noted that:

As the balance sheet and the income statement in the SNC have a much higher

degree of summarization, all important information has to be in the notes. In

SMEs, the notes have very little information. Thus, in SMEs, the quality of

financial information will be worse than it was in the POC.

The second major reason for the limited effect of the adoption of the SNC at the

organisational level was the possibility of preserving the same accounting practices. The

inclusion of the SME standard in the SNC enabled accountants to use a simple version

of IFRS. Because the operations of their clients are also very simple, they are not forced

to use the set of 28 SNC standards, thus maintaining the same representational schema

of the POC. Interviewee I averred that in very small companies there are no significant

differences between the two systems because accounting rules regarding current

operations (such as sales, wages or purchase of goods and services) are identical.

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Interviewee J explained that “the major difference is the chart of accounts. All the rest

remains the same.” Interviewee H expanded upon this point:

Tax forms will demand thorough explanations of the options taken, which will

increase our work. Thus, in small companies we will take the most basic and

simple options. Accountants will limit their work to complying with tax

obligations.

Organisational field practices (POF) are translated at the organisational level into

working practices and subsequently are enacted at the intra-organisational level (Hopper

& Major, 2007). If these practices reinforce interests and beliefs of agents at this level,

they are institutionalised. However, if contradictions occur, resistance to the

institutionalisation of the imposed practice is expected (and organisations exert pressure

to change eventually) (Cruz et al., 2009). Two important institutional contradictions can

be identified. First, is the increase in the efficiency gap between the structures being

adopted by small accounting firms and their practices grounded in the old accounting

system. Second (and most importantly), is the misalignment between the features of the

SNC that ultimately reflect the goals and needs of multinational corporations and capital

markets and the interests of these small accounting firms. Even though small firms

apply the specific standard for SMEs, they are conscious of the institutional conditions

that led to the adoption of the new accounting system and how their needs are not a

priority. Indeed, the increase in the initial limits to which the NCRF-PE could be

applied reveals how Portuguese companies were able to change the legitimacy criteria

being imposed on them (consistent with Seo and Creed, 2002). These contradictions

delayed enactment of the imposed practices and hindered de facto application of the

new rules.

Greenwood and Hinings (1996) note that the greater the extent to which

organisations are tightly coupled to a prevailing archetypal template within a highly

structured field (such as accounting) the greater will be resistance to change.

Accordingly, loose coupling was expected. The lack of acceptance of (or resistance to)

new accounting rules and routines can lead to a ceremonial use of accounting within an

organisation (Burns & Scapens, 2000). As a result, loose coupling of accounting

neutralises the impact of accounting change and leads to institutional stability (Nor-

Aziah & Scapens, 2007). The change of account codes was one of the most important

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changes for these accountants. By keeping existing arrangements separate, independent

and unaffected by the SNC (loose coupled), actual operations are unaffected by the

implementation of accounting change. Thus, a degree of stability is maintained.

These explanations are consistent with the different behaviour of accountant G.

He had several clients above the limits prescribing application of the SME standard.

Thus, he was forced to change procedures, thereby revealing different legitimating

grounds and representation schema. He was the only accountant interviewed to have

conversion procedures for adoption of the SNC (the others solved transition problems as

they arose). Interviewee G adopted the 28 SNC standards for all client companies. He

stressed that for his clients in the agriculture industry, the SNC provided more

appropriate regulation than the old accounting system (in which production animals

were recognised as tangible assets without taking account of their specific

characteristics). He also felt comfortable with the use of fair value, despite this being a

prominent problem for Portuguese accountants used to historical cost valuation. In the

particular case of biological assets, Interviewee G contended that “fair value is the best

way to measure them and it is unproblematic to estimate them.” In this case,

deinstitutionalisation of the former practices occurred because the POC was inadequate

for some of his clients, particularly those in agriculture. The changes in the law

prohibited perpetuation of the institutionalised practices of the POC in some of his

clients (Oliver, 1992). These combined events led to the development of new

signification and legitimation structures that were supported by additional allocation of

resources: Interviewee G hired a person to assist with conversion to the SNC.

Regarding the domination perspective, all accounting firms have one or two

senior accountants who decide the norms and values that prevail in organisational

practices. Accordingly, the legitimating grounds and representational schemes of their

firms reflected personal views and opinions about the SNC. However, for most

accountants allocating resources to the transition to the SNC was compulsory and did

not support the development of new signification and legitimation structures. The

allocation merely complied with new legal requirements and OTOC-imposed

professional training requirements. When conformity to institutional standards implied

changes in core values, rather than adaptation of secondary characteristics, resistance to

adopting standards is stronger (Oliver, 1991). This is reflected in resource allocation to

the new structures.

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5.3.2 Isomorphic pressures

Coercive, normative and mimetic processes were present in the institutionalisation

of the SNC at the organisational level. Two different coercive pressures operated at the

organisational level. First, was the State, through the imposition of the SNC, and its

associated enforcement measures (fines between €500 and 1,500€). Also, the State

influenced the moment that companies began to convert to the SNC through the fiscal

obligations of 2010 it imposed (VAT declarations). Second, was the coercive pressure

exerted by clients. In respect of his preparedness to adopt the SNC, interviewee G

noted:

I have important responsibilities towards my clients, so I had to be prepared.

Small companies did not notice the change of accounting system. But larger

companies did. And it was important that all went well for them to keep their

trust in my work.

Interviewee I offered the view that:

We have to be aware of the SNC to know what we should do. If our clients ask

questions we have to know what to answer them.

Even though most clients were unaware of the adoption of a new accounting system,

accountants felt they could not abandon clients’ expectations of quality accounting

services, regardless the accounting system in force. Interviewee G stated that:

Even when our competitors have lower prices, clients do not change if the

relationship with the accountant is good.

All four accountants interviewed agreed that their relationship with clients was

very stable and based on trust. However, to fulfil expectations, a limited application of

the SNC was sufficient. This is consistent with the argument of D’Aunno et al. (1991)

that organisations rank new practices in terms of a hierarchy of unequally important

institutional demands. Organisational response relies on an evaluation of the importance

of new practices for organisational legitimacy. This, in turn, depends upon the power of

each institution. Organisations are more likely to acquiesce to the institutional demands

of organisations on whom they depend (DiMaggio & Powell, 1983; Oliver, 1991).

Accordingly, Portuguese accountants changed their accounting practices to the extent

74

necessary. They did so to maintain their legitimacy, given their assessment of the

institutional demands placed on them by the State and by clients.

Normative and mimetic pressures cannot be distinguished fully. They have

combined effects on the process of institutionalising the SNC. The normative part is

present in the intensive professional training all accountants were required to undertake.

This legitimated a new cognitive base and promulgated new normative rules of

professional behaviour. For all accountants, talking with other colleagues (to clarify

specific doubts during the adoption of the SNC) was regarded to be an important part of

their preparedness, in addition to professional training. Though the exchange of

information among professionals is identified usually with normative influences

(DiMaggio & Powell, 1983), the way accountants modelled their behaviour on other

accountants, in the uncertain environment of SNC adoption, reflects mimetic

isomorphism as well. Accountant I noticed that in the transition process he also felt the

pressures to be well prepared exerted by other accountants. These arose on “social

occasions, such as dinners with colleagues, or in the audit firm” where he was training

to be an official auditor. This is consistent with the importance of socialisation as an

isomorphic force.

6. Conclusions

Generally, our results are consistent with the model proposed by Dillard et al.

(2004). That model was able to explain the top-down deinstitutionalisation of the POC

and the institutionalisation of the SNC, through a process involving articulation of

institutional dynamics at different levels of the societal context.

Several suggestions to refine the Dillard et al. (2004) model arise in the context of

the convergence of local Portuguese standards with IFRS. Essentially, these refinements

relate to the top-down nature of the model and how agents at the organisational field

level can counteract the institutionalisation process before it reaches the organisational

level. Actions of Portuguese professional accounting associations illustrate how their

interests were accommodated by the accounting obligations of micro-entities that were

imposed at the political and economic level. This reveals that professional accounting

associations can be a primary agent at the political and economic level through the

75

influence they exert on the content of accounting regulation; and that institutional

influence at the organisational field level can be spread in all directions (including

upwards) through pressures on legislators.

Our results reveal also that the cascade of the institutional process can invert at an

earlier stage than is portrayed in the Dillard et al. (2004) model; and that such inversion

is not necessarily a consequence of changes motivated by agents of the organisational

(or bottom) level. OTOC was able to influence the final content of the SNC through the

document developed by its team of professional experts. Accordingly, in the “due

process” phase of establishing accounting standards, operating practices considered

legitimate at the organisational field level are present in positions taken by professional

accounting associations and other organised parties, influencing regulations enacted at

the political and economic level. Consequently, the refinements we suggest to the

Dillard et al. (2004) model at the organisational field reinforce its applicability to the

accounting arena.

At the political and economic level, signification and legitimation structures

evolved towards utility of financial information and a principles-based approach to

accounting. Actions of the EU provided the context (CPE) for developing a new

accounting system based on IFRS (COF) in Portugal. The SNC represented new

organisational field criteria issued at the PE level as a response to institutional pressures

initiated by an important influential agent, the Minister of Finance. Though the CNC

developed an initial version of the new accounting system, political pressures exerted by

the government were essential for the SNC to proceed, and for its final content to be

shaped. The Minister of Finance (a former stock exchange regulator) was the ideal

receptor of complaints by listed companies about the high costs of dual accounting. His

involvement instanced the institutional influence of powerful groups at the political and

economic level. This demonstrated a link between coercive pressures and normative

pressures. The latter type of pressures was evident also on several official auditors of

the Executive Committee of the CNC by virtue of their work experience with

multinational and listed companies. Nonetheless, the government sought to reach a

consensus among Portuguese companies by ensuring that the new accounting model

was adequate for the needs of SMEs (through the inclusion a specific standard for

SMEs).

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At the organisational field level, the SNC concurred with the prevailing

representational schema of the accounting profession by highly regarding the integration

of accounting services and business management. The new accounting system

strengthened the importance of the accounting profession by requiring a more

conscientious practice of accounting – one involving a principles-based approach. This

feature allowed the President of OTOC to seek (bargain) the elevation in status of the

accounting profession to “Order.” This concession was compensated through the

extensive professional training provided by OTOC to spread legitimate operating

practices at the field level (POF). This confirms the significant role accounting

associations can play in legitimising changes in institutionalised fields. Nonetheless, the

evolution of institutional change in the Portuguese accounting profession is a function

of the expression of latent interests of agents (transformative agency) (Seo & Creed,

2002).

There has been a limited application of the SNC by small accounting firms.

Results reveal that two very different perspectives about the accounting profession are

held by the President of OTOC and small accounting firms. The benefits of the SNC to

the accounting profession envisaged by the President of OTOC, and that led him to

embrace the new accounting system, were not perceived in small accounting firms. The

characteristics of the clients of these small accounting firms (who use accounting

mainly for tax purposes) meant that the claimed advantages of the SNC (e.g. enhancing

the role of the accountant in the management of small companies; enhancing the status

of the profession due to the requirement for professional judgments and due to

application of a sophisticated set of accounting standards that demanded better

knowledge of finance and financial instruments) were not experienced. Rather, in small

accounting firms the SNC was perceived to require excessive transition costs and undue

effort for the reduced number of financial statements users. Further, it was regarded to

yield no increase in the quality of accounting information. Accountants were allowed to

use the SME standard that involved small differences in accounting practices when

compared with the POC. Accordingly, some accountants engaged in a ceremonial use of

the SNC and maintained the old representational schema when framing new situations.

Such loosely coupled accounting practices allowed them to have a sense of stability in

the uncertain environment that arose from the adoption of the SNC (Nor-Aziah &

Scapens, 2007).

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The different behaviour of interviewee G reveals that the 28 SNC standards were

well accepted by several accountants, particularly when institutional contradictions are

smaller, and they share a similar view to that of the President of OTOC about the

accounting profession. At the organisational level, these explanations are consistent

with the conceptualisation of organisational behaviour that addresses internal

organisational dynamics and embraces translation of new practices (Hopper & Major,

2007). Resistance can arise when interests and needs of agents are contradicted by

imposed practices. When they are not contradicted, institutionalisation occurs. This

conceptualisation is particularly useful in a context of compulsory practice adoption

because it provides a better understanding of organisational behaviour than the two-

stage diffusion process (innovators versus late adopters) used by Dillard et al. (2004).

Our results complement previous analyses of IFRS adoption by nation states that

have used institutional lenses (Irvine, 2008; Mir & Rahaman, 2005).We reveal that

embeddedness of new accounting practices can depend on factors other than a

coordinated structure capable of accommodating interests of the parties involved or the

adaptation of IFRS to the needs of different users. The process of accounting change is

slow. The accounting concepts transferred from the previous system prevailed among

small accounting firms. Accounting standards were easier to change than it was to

change the representational schemas of accountants framing the organisational reality

they accounted for. The micro–entities standard seems likely to bridge accounting

regulation and the interests and needs of small accounting firms, thereby overcoming

the gap that persisted with the NCRF-PE (the SME standard). However, tight coupling

and de facto application of principles-based accounting standards (consistent with

purposes of the SNC) demand changing signification and legitimation structures at the

organisational level. Such changes should involve a gradual process linked to the

evolving social environment.

We are mindful of concerns about the generalisation of findings based on a small

unrepresentative number of cases. However, when it is possible to relate research results

to theoretical propositions (as here), findings have a broader significance than the cases

that are the basis of our work (Moll et al., 2006b). Additionally, because

institutionalisation is a longitudinal process (Scott, 2001), further qualitative studies

could improve understanding on the institutionalisation process of the SNC by

analysing which accounting standard has prevailed (NCRF-PE or micro-entities

78

standard), and how legitimation and signification structures of small accounting firms

have evolved. The approach used here can be replicated to study institutionalisation

processes of new accounting systems in other countries. This would allow comparisons

of the institutional dynamics among different nation states and help refinement of the

Dillard et al. (2004) model. It would also provide a deeper understanding of the

processes articulating criteria and practices over the three levels of societal systems.

79

ESSAY 3

Factors Influencing the Preparedness of Large

Portuguese Unlisted Companies to Implement

Adapted International Financial Reporting

Standards in Portugal

80

81

1. Introduction

From 2005 onwards, compliance with IFRS became compulsory for listed

companies in many countries (including in those in the EU). According to Chua and

Taylor (2008) there has been an inexorable and irreversible rise of IFRS as the global

accounting benchmark. Adoption of IFRS has major implications for firms. The

conversion from national accounting standards to international accounting standards is

complex and time consuming. Differences between national accounting standards and

IFRS need to be identified and reporting processes adapted (Ernst&Young, 2006).

Additionally, cultural influences and reporting traditions have the potential to confound

the process of conversion.

Although several studies have discussed problems of implementing IFRS (e.g.

Alp & Ustundag, 2009; Ding & Su, 2008; Jaruga et al., 2007; Jermakowicz & Gornik-

Tomaszewski, 2006), with the exception of the study of listed companies in Portugal by

Guerreiro et al. (2008), no published research has systematically evaluated the degree of

preparedness of companies to adopt IFRS. This essay extends the study of Guerreiro et

al. (2008) by exploring the extent to which large unlisted Portuguese companies were

prepared, in September 2009, to adopt the new Portuguese accounting system, the SNC.

In analysing the preparedness of Portuguese companies to adopt the SNC, we combine

the initial framework of DiMaggio and Powell (1983) with more recent perspectives of

institutional theory that accommodate change, strategic choice, organisational resistance

and institutional logics (Broadbent et al., 2001; Lounsbury, 2007; Marquis &

Lounsbury, 2007; Oliver, 1991; Thornton & Ocasio, 2008).

Accordingly, this essay extends understanding of the institutional factors that are

associated with the preparedness of large Portuguese unlisted companies to adopt the

SNC. The explanatory variables are classified as coercive, normative and mimetic

processes (DiMaggio & Powell, 1983). To assess the degree of preparedness of

Portuguese unlisted companies to adopt the SNC, a proxy was developed to capture the

conversion practices used.

The institutional framework adopted is concerned primarily with how companies

relate with the institutional environment, the effects of social expectations on

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companies, and how these expectations affect company characteristics (DiMaggio &

Powell, 1991). As Scott (1987: 504) contend “[o]rganizational decision makers have

been shown to adopt institutional designs and attempt to model their own structures on

patterns thought to be, variously, more modern, appropriate, or professional.”

Accordingly, several studies have revealed that organisations are very cognizant of the

societal context and institutional rules and requirements to which they must conform in

order to receive support and legitimacy from the environment (Granlund & Lukka,

1998; Mezias, 1990; Palmer et al., 1993; Touron, 2005). Portuguese unlisted companies

are no different: they face pressures from several institutional constituents. These

pressures have to be weighted by them when they are preparing to adapt their

accounting practices (Hyvönen et al., 2009). By applying institutional theory to unlisted

companies and by moving beyond economic explanations, we broaden the scope of

previous studies of the adoption of international accounting standards, and improve

understanding of the behaviour of unlisted companies.

An important motivation for our investigation is to understand whether (at close to

the time for mandatory adoption of international accounting standards) unlisted

companies had a different level of preparedness than listed companies (Guerreiro et al.,

2008). Thus, we respond to questions posed by Meek and Thomas (2004: 31): “What

about nonlisted companies and companies’ nonconsolidated (i.e., individual company)

accounts, particularly those from European code law countries? Will they continue to

reflect national accounting systems, or will they shift away from them?” Often, within

the same country, listed and unlisted companies exhibit different accounting practices:

the market for their financial reporting differs substantially (“outsider” versus “insider”

information), and accounting practices regarding individual accounts are more likely to

be influenced by taxation, dividend and other policies, implying a lower quality in these

financial statements (Ball & Shivakumar, 2005). However, Francis et al. (2008) argue

that even though private firms do not face the agency problems of listed companies,

they do face an information asymmetry problem that affects their ability to engage in

contracting with external parties. As a consequence, they use IFRS to improve the

quality of their financial reports. Thus, it is important to understand how unlisted

companies embraced the new accounting systems, based on IFRS, because such systems

are being adopted widely in Europe.

83

The present study differs from Guerreiro et al. (2008) and extends that prior study

in important ways. First, the focus is on preparedness to adopt an IFRS-related regime

of accounting standards by unlisted companies, rather than listed companies. Second,

the findings are analysed using a framework of new institutional theory. Guerreiro et al.

(2008) did not specify a theoretical framework. Third, the present study is conducted six

years later (2009 versus 2003) and draws upon significantly more responses (116 versus

31) for empirical support; and fourth, it provides a composite measure of the

preparedness of unlisted companies to adopt IFRS (as adapted in the SNC) for use in

Portugal. Because this composite measure incorporates a much wider set of conversion

procedures, it better captures the ability of unlisted companies to deal with IFRS.

We report the results of completed mailed questionnaire survey responses from

116 large Portuguese unlisted companies at the end of 2009 (that is, in the last quarter

prior to conversion to the SNC). The results are consistent with Guerreiro et al. (2008)

in revealing that the level of preparedness in the last quarter before the transition was

low. However, with the exception of a company’s engagement in export activities,

several factors that proved to be important as incentives for the preparedness of listed

companies are not significant for unlisted companies. Importantly, some other unique

factors are revealed to be significant in explaining the general level of preparedness of

unlisted companies. These are the participation of a parent company in decisions

regarding conversion procedures, having Portuguese citizens as capital owners, and the

extent of a company’s reliance on the services of consultants. Our findings emphasise

that organisational evolution, in terms of accounting practices, is shaped fundamentally

by coercive and mimetic pressures; and that attention should be paid to normative

embeddedness and competing institutional logics as sources of organisational resistance

to broad-scale institutional changes.

The following section outlines the theoretical framework adopted. Hypotheses are

then developed concerning the factors expected to affect the degree of preparedness of

unlisted companies to adopt the SNC. Subsequent sections outline the research method

and empirical model, present results, and enter conclusions.

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2. Analytical Perspectives from New Institutional Theory

Commonly, decisions to adopt IFRS are said to have been prompted by economic

rationality and the notion that IFRS are high quality accounting standards likely to result

in more timely and transparent accounting information (Barth et al., 2008; Francis et al.,

2008). However, adoption of IFRS can also be seen through institutional lenses: as a

routine institutionalised by companies in response to pressures for change, and as a

means of garnering legitimacy by emulating an international trend (Chua & Taylor,

2008). In addition, the adoption of IFRS accords companies ceremonial benefits by

helping them to nurture an image of rationality and a reputation for keeping abreast of

fashionable business techniques (Rodrigues & Craig, 2007). Clearly, as Mezias (1990:

455) has observed, there is a need for “[b]etter understanding of how institutional

environments contextualize and shape the rational pursuit of profit by organizations…”

Institutional theory links organisational practices (such as accounting), the values

of society in which organisations operate, and the need to maintain organisational

legitimacy (Deegan & Unerman, 2006). Legitimacy is seen not as a commodity to be

possessed or exchanged, but as a “[g]eneralized perception or assumption that the

actions of an entity are desirable, proper, or appropriate within some socially

constructed system of norms, values, beliefs, and definitions” (Suchman, 1995: 574).

Institutional theorists believe that formal organisational structures reflect technical

demands and resource dependencies, and are shaped by institutional pressures. A key

element of institutional analysis is to establish how institutional mechanisms reinforce

or weaken the prevailing social order (Scott, 2008). Thus, the central thrust of

institutional theory is to explain the homogeneity of structure, processes of legitimation

and social reproduction (DiMaggio & Powell, 1991). These ideas lead to the concept of

isomorphism. DiMaggio and Powell (1983) proposed three types of isomorphism that

are critical in understanding the process of institutionalisation: coercive, normative and

mimetic isomorphism. Underpinning these notions of isomorphism is the assumption

that organisations adopt structures and practices that are considered legitimate and

socially acceptable by other organisations in their field.

Coercive isomorphism concerns the way in which organisations are subject to

formal or informal pressures that arise from other organisations upon which they

depend; and/or that arise from cultural expectations in society. Coercive isomorphism

85

can be viewed as a means of authority and coercive power (Scott, 1987). Changes in

structural forms imposed by authority are expected to find less resistance, occur rapidly,

be less superficial, and be associated with higher levels of compliance and stability, than

those imposed by force. Accordingly, in addition to the regulatory environment,

coercive pressures stemming from corporate (inter-)dependencies should play an

important role in the preparedness of companies to adopt the SNC.

Normative isomorphism stems primarily from the profession (DiMaggio &

Powell, 1983). Normative rules bring a prescriptive, evaluative and obligatory

dimension to social life. Normative systems define goals and objectives and appropriate

ways to pursue them. Members of a profession share a common understanding and

knowledge base. Two aspects of professionalisation are important sources of

isomorphism. First, is the cognitive base that is produced by universities and

professional training institutions. The professional norms they develop are the base of

legitimation for the occupational activity. Second, is the development of professional

networks, such as professional and trade associations. They define and promulgate

normative rules about organisational and professional behaviour (DiMaggio & Powell,

1983). Thus, professional associations and relational networks should be considered in

any explanation of organisational behaviour regarding the transition to the SNC.

Mimetic isomorphism occurs when organisations model their structures or

practices on similar organisations that they perceive to be more successful and

legitimate (DiMaggio & Powell, 1983). Organisations observe each other to learn the

practices that are effective and acceptable in their social system. Conditions of

uncertainty empower mimetic behaviours. When organisations are unsure what to do,

they frequently look to a reference group, or to kindred organisations, and emulate what

they do in similar situations (Carruthers, 1995). This behaviour underlies a ritual aspect:

that mimetic isomorphism seeks to enhance legitimacy by adopting a common frame of

reference. This is the cognitive pillar of institutionalisation, and “[i]t rests on pre-

conscious, taken-for-granted understandings” (Scott, 2001: 61). Consequently, two

important mimetic forces are identifiable influences on the preparedness of companies.

First, is the consultancy industry. It generates strong mimetic processes (Granlund &

Lukka, 1998). Consultants usually offer high quality services and exposure to best

transition practices. Thereby, they facilitate a smooth transition to IFRS. Second, is the

86

practice of imitating organisations that are viewed as being successful in the

organisation field.

More recently, institutional researchers have addressed issues of human agency,

organisational resistance and strategic choice, and have moved well beyond

assumptions of passivity (e.g. Broadbent et al., 2001; Dillard et al., 2004; Greenwood &

Hinings, 1996; Marquis & Lounsbury, 2007; Oliver, 1991). From this literature two

important research avenues emerge through which different organisational responses

can be explained. First, is the definition of a repertoire of strategic responses that varies

in levels of active organisational resistance (that is, from passive conformity to

proactive manipulation) (Oliver, 1991). Second, is the importance of normative

embeddedness and institutional logics as major sources of organisational resistance to

change (Broadbent et al., 2001; Greenwood & Hinings, 1996; Marquis & Lounsbury,

2007).

Oliver (1991) identified the conditions under which organisations resist

institutionalisation. She noted five different organisational strategic responses to

institutional pressures that vary by degree of agency. These include acquiescence,

compromise, avoidance, defiance and manipulation. Factors that condition strategic

choice comprise the rationales of institutional pressures, the constituents involved, the

content challenged, the means by which the pressures are exerted, and the

environmental context. She argued that further theoretical and empirical attention

should be accorded to the processes and mechanisms for contesting institutional change.

As a consequence, some scholars have redirected their efforts towards understanding the

conditions under which organisations, professionals and other actors resist broader-scale

institutional changes.

Marquis and Lounsbury (2007) highlight how the concept of resistance is

particularly important in overcoming passive conceptualisations of organisational action

that have characterised institutional theorising. Additionally, as resistance hinders

isomorphism, the study of resistance provides greater insight to how organisational

variety emerges and how it is sustained in organisational fields. Greenwood and Hinings

(1996) noted that resistance to change is linked to the degree of normative

embeddedness of an organisation within its institutional field. That is, organisations that

are tightly coupled to a prevailing archetypal template within a highly structured field

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are likely to resist change. Furthermore, organisational resistance is highly likely when

the normative institutional context, which drives professional practices, is threatened by

changes in the regulatory institutional context (Broadbent et al., 2001). Nonetheless, if

changes in normative values are desirable (taking account of the needs of competing

stakeholders), practices will eventually change through processes of colonization (such

as by coercive or mimetic isomorphism).

Resistance to institutional change has been explained also through the concept of

institutional logics, or broader cultural beliefs and rules that structure cognition and

guide decision-making in an organisational field (Lounsbury, 2007, 2008; Marquis &

Lounsbury, 2007; Thornton, 2002). Rather than focus on the reproduction of social

structures (isomorphism), this approach to institutional analysis posits that institutional

logics define the content and the meaning of institutions. The approach focuses on the

effects of differentiated institutional logics on individuals and organisations in a large

variety of contexts (Thornton & Ocasio, 2008).

Logics are the beliefs and practices that constitute organising principles and

recipes for action: they shape rational, mindful behaviour; and individuals and

organisational actors have some hand in shaping and changing institutional logics

(Owen-Smith & Powell, 2008; Thornton & Ocasio, 2008). Through emphasis on

rationality and decision-making, this concept entails a deep examination of actors and

practices and broadens the scope of institutional analysis to organisational heterogeneity

and practice variation (Lounsbury, 2008). According to Marquis and Lounsbury (2007),

competing institutional logics in the professional arena are a foundation for resistance.

They argue that actions of professionals are shaped fundamentally by broader

institutional logics; and that professionals in a community are an importance source of

resistance to the changes made by larger entities, especially when those entities pursue

opposing goals and beliefs. Thus, resistance to institutional change (Oliver, 1991) is

understood to be socially structured by competing logics (Marquis & Lounsbury, 2007;

Owen-Smith & Powell, 2008).

The adoption of the SNC required considerable implementation effort because of

the many measurement and disclosure differences between it and the former accounting

system. A shift was required from a code-law logic to a common-law logic (that is, to

an Anglo-Saxon principles-based accounting model).

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The rationales for action provided by the new institutional logic implied by the

SNC demanded the development of new cognitive structures by accounting

professionals and by organisations. The SNC was intended to lead to important changes

of perspective for preparers and users of financial information. Nonetheless, studies

have shown how competing logics fundamentally shape variation in the practices and

behaviours of individuals and organisations (Lounsbury, 2007; Marquis & Lounsbury,

2007) and provide a foundation for resistance. Indeed, the SNC heralded a significant

change in the culturally-based accounting mentality of Portugal. Organisational

resistance could reasonably be expected to be activated by the shift of institutional

logics.

Thus, the behaviour of Portuguese companies in preparing to adopt the SNC

seems likely to be dominated by a collection of regulatory pressures, normative

orientations, the behaviour of other successful companies, and changes in institutional

logics. The range of important players includes the Portuguese State, the accounting

profession, and individual organisations. For our present purpose, the institutional

pressures to which companies are subject will be used to explain the preparedness of

unlisted companies to adopt the SNC.

3. Hypotheses

Based on the theoretical framework previously outlined, explanations for the

degree of preparedness of companies are now outlined.

3.1 Coercive Pressures

3.1.1 Parent company dependence

Resource-dependence is a source of coercive isomorphism (DiMaggio, 1988).

Thus, subsidiary companies are likely to adopt patterns of behaviour sanctioned by the

parent company if the parent company controls the subsidiary’s access to critical

resources. For example, due to consolidation procedures, complex organisations with

several subsidiaries have important incentives for internal homogenisation.

89

Accordingly, parent companies usually transfer organisational techniques to subsidiaries

facilitate the coordination and management of the activities of the conglomerate

(Granlund & Lukka, 1998).

H1: The degree of preparedness to implement the SNC by companies in

which the parent company makes decisions about the conversion process

is greater than the degree of preparedness of companies that do not have

such involvement by the parent company in their conversion process.

3.1.2 National ownership

Economic rationales contend that the adoption of IFRS by multinational

companies will enhance reporting to international constituents (Murphy, 1999) and will

reduce the additional information asymmetry faced by foreign investors (Francis et al.,

2008). Thus, according to arguments based on economic rationalism, foreign ownership

should motivate companies to be better prepared to adopt the SNC. However,

institutional theorists believe that all social systems, such as organisations, exist in an

institutional environment that defines and delimits social reality (Scott, 1987). This can

be related to the notion of cultural embeddedness, in which shared understanding (in the

form of beliefs and ideologies) prescribe and constrain organisational action.

Accordingly, owners of companies who are Portuguese citizens would be more likely

than non-Portuguese owners to follow the development of the SNC, be more aware of

the environmental pressures for conformity, and feel the need of their companies to

meet the expectations of Portuguese society. Thus, Portuguese owners should be more

conscious of the legitimacy achieved through conforming to institutional pressures; and

this, thereby will provide coercive pressure for their companies to be well prepared to

adopt the SNC. The effect of this pressure will be amplified in companies belonging to

Portuguese conglomerates, in which several organisations are seeking an articulation of

legitimacy and institutional conformity.

H2: The degree of preparedness to implement the SNC of companies with

exclusively Portuguese owners is greater than the degree of preparedness

of companies with the participation of foreign owners in the company’s

capital.

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3.2 Normative Pressures

Normative pressures stem primarily from professionalisation (Scott, 2001). They

can affect the harmonisation of accounting practices significantly. Accounting standard-

setting processes in several Anglo-Saxon countries are controlled by bodies sponsored

by local professional organisations. Accounting associations and audit firms have

played an important role in the dissemination of IFRS and the transformation of the

IASB (Chua & Taylor, 2008). Two different proxies for the influence of normative

pressures on the degree of preparedness of companies to adopt the IFRS are

membership of professional accounting associations; and auditor type.

3.2.1 Membership of professional accounting associations

National professional accounting organisations are important channels through

which global practices can be diffused at a local level (Granlund & Lukka, 1998).

Professional training and the professional press are sources of professionalisation too.

They help spread values and norms to become internalised by accountants. Chief

financial officers or accountants who belong to several professional accounting

associations are likely to be influenced by the international homogenization of

professional expertise (IFRS) endorsed by those organisations. Professional associations

legitimate change by hosting a process of discourse through which change is debated

and endorsed (theorisation), thereby shaping the diffusion of innovative practices

(Greenwood et al., 2002). Membership of more than one professional accounting

association reveals commitment to the profession and more interest in the socialisation

process of these associations.

H3: The degree of preparedness of companies to implement the SNC

increases with the number of professional accounting associations to

which the CFO or accountant belongs.

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3.2.2 Auditor type

Multinational accounting firms have been strong advocates of the global adoption

of IFRS (Chua & Taylor, 2008; Hopwood, 1994). Historically, these firms have been a

strong and effective vehicle for the transfer of accounting practices and competencies

(Touron, 2005). Multinational audit firms have developed expertise in auditing IFRS.

They provide advisory services, implementation brochures, and detailed conversion

guidance to companies transitioning to IFRS. Because of this, they are an important

channel of normative influence. The Big-four companies draw on their past experience

to provide better guidance to their clients, particularly those in countries (such as

Portugal) that are now adopting accounting systems based on IFRS (the SNC).

Accordingly, companies whose audit is conducted by a Big-four accounting firm are

expected to be better prepared to adopt the SNC.

H4: The degree of preparedness to implement the SNC of companies audited

by a Big-four accounting firm is greater than the degree of preparedness

of companies not audited by a Big-four accounting firm.

3.3 Mimetic Pressures

Institutional theorists argue that mimetic pressures are linked to the cognitive and

socially constructed side of human behaviour; and that they rest on taken-for-granted

understandings (Scott, 2001). Cognitive elements should provide models of

preparedness for organisational decision makers to imitate. Two different proxies were

used to assess mimetic isomorphism: the procurement of consultancy services, and the

conduct of export activities. These proxies capture different dimensions of mimetic

pressures. The first proxy captures the conscious choice for modelling the conversion

process in accord with the best practices of consultancy firms. The second proxy

captures the ritual or unwitting mimicking of the practices of other successful

organisations in their organisational fields of export organisations (DiMaggio & Powell,

1983); and is likely to be perceived as important to their survival prospects (Scott,

2001). Portuguese export companies share differentiated and specialised institutional

logics. They have specific government incentives, privileged credit access and

additional competitive requirements. This distinguishes them from other companies that

92

operate exclusively in the national market. Thus, their mimetic behaviour should also

take into account the activities of the other participants in their commercial field.

3.3.1 Consultancy services

Uncertainty is a powerful source that encourages imitation, particularly when

organisational technologies are poorly understood or the environment creates symbolic

uncertainty (DiMaggio & Powell, 1983). Organisations rely on competing modes of

social behaviour. The most prevalent or successful are often the ones adopted (Granlund

& Lukka, 1998). Given the uncertainty associated with the adoption of a new

accounting system that requires substantial organisational changes (e.g. of processes for

preparing financial information and financial reporting and providing training to

management and staff), consultancy companies provide expertise and best practices for

a smooth transition to the SNC. Accordingly, as DiMaggio and Powell (1983) noted,

mimetic isomorphism occurs, not only through unintentional diffusion of models, but

also explicitly by contracting organisations such as consultancy firms. For this reason,

companies which acquire consultancy services to assist in the conversion process are

expected to have modelled their conversion process on the standards of major

international consulting firms. Consequently, in those companies, the conversion should

develop in a more proficient manner, and they should be better prepared to adopt the

SNC.

H5: The degree of preparedness to implement the SNC of companies which

engage consultants is greater than the degree of preparedness of

companies which do not engage consultants.

3.3.2 Export activities

Mimetic isomorphism should be more pronounced in export companies. The SNC

provides legitimacy to export companies through their adoption of accounting practices

that are similar to the ones adopted by companies throughout the world. Companies in

about 70 countries already use IFRS, including EU listed companies (Alp & Ustundag,

2009). Several EU member-states have imposed IFRS for all companies, including

93

Spain (Portugal’s largest trading partner). As export companies deal continuously with

foreign companies, they should be more familiar with accounting practices based on

IFRS. And they should be more aware of the legitimacy associated with adopting these

standards. Thus, engaging in export activities should increase the receptivity of

companies to adopt the SNC. Consequently, these companies would increase their

preparedness, given their international models of successful accounting practices.

H6: The degree of preparedness to implement the SNC of companies with

export activities is greater than the degree of preparedness of companies

with no export activities.

4. Method

Data were collected from a questionnaire survey posted on 15 September, 2009.

The initial sample comprised the 500 largest Portuguese unlisted companies.13

However, the final sample was reduced to 419 companies because 81 companies of the

Top 500 unlisted companies were not required to make the conversion to the SNC at

January 2010: 63 companies were removed because they had already converted to

IFRS; 13 were state hospitals and did not have to adopt the SNC; 3 had been acquired

by other companies; and 2 were not required to adopt SNC until January 2010

(subsidiaries of multinational companies with their fiscal year starting in November

2010). CFOs and accountants were targeted as respondents because their functional

responsibilities enable them to provide informed organisational insight to the

preparedness of companies to adopt the SNC. To enhance reliability of the results, and

improve likely response rates, the questionnaire was pilot-tested prior to distribution to

verify the reliability and suitability of the questions (Salant & Dillman, 1994). During

August 2009, initial pre-survey contact was made with all companies. Three follow-up

contacts were made during October and November, 2009.

A total of 116 (28%) usable questionnaire responses were received — a response

rate common in unsolicited surveys (Nazari et al., 2006). Non-response bias was

assessed by comparing the distribution of respondents against the distribution in the

population in terms of turnover, total assets, number of employees, and foreign

13 This list of companies, reported to 2007, was published in the management magazine “Exame” in 2008. Dun & Bradstreet provided the financial data for 2007 for these companies.

94

ownership. The Kolmogorov-Smirnov z test confirmed that the three scale variables

were not distributed normally in the population (p-value = 0.000). The Mann-Whitney

U non-parametric test revealed no evidence that the respondent companies differed

significantly from companies in the population in terms of turnover (p-value = 0.590),

total assets (p-value = 0.646), number of employees (p-value = 0.252). The chi-square

test revealed no significant differences between responding and non-responding

companies in foreign ownership (p-value = 0.183). Therefore, the sample was found to

be representative of the population (Creswell, 2009).

5. Empirical Model

Companies preparing to adopt a new regime of accounting standards usually

engage in two major activities: impact assessment proceedings, and conversion

proceedings (Guerreiro et al., 2008). We develop a measurement that is a composite of

these two activities and represents the degree of readiness of companies to deal with the

SNC: the PREP variable. PREP is the dependent variable in the multiple regression

models we developed to test the research hypotheses.

5.1 Dependent Variable: Degree of Preparedness of Large Portuguese Unlisted

Companies

A latent variable was developed to evaluate how well large Portuguese unlisted

companies were prepared, at the end of 2009, to adopt the SNC. Our goal was to extend

the method of Guerreiro et al. (2008). They developed a latent variable to incorporate

views on the preparedness to adopt IFRS that were proposed by the International Forum

for Accountancy Development and PricewaterhouseCoopers.

To assess the degree of preparedness to adopt the SNC more comprehensively,

we developed a single measure that incorporates a wider range of procedures.

Accordingly, a Preparedness Degree (PREP) variable was developed from the responses

to four sets of questions (A, B, C, and D) in the questionnaire. These sets are related to

assessment procedures (A) and conversion procedures (B, C and D). The items in these

95

sets of questions (proposed by Ernst & Young (2008)14 and listed in Table 3.1) are used

to indicate the preparedness of companies to adopt the SNC.

Table 3.1

Assessment and Conversion Procedures in the Composite Measure1

Assessment procedures: question (A)

� Accounting items most problematic for the company*

� Changes in accounting policies and their impact on values in the financial statements

� Impact on value ratios and performance indicators*

� Changes in the information system*

� Changes in the management accounting system*

� Changes in the internal control system and ensuing documentation*

� Training needs of staff

� Costs involved

� Reactions of main business partners

� Other assessment procedures*

First-time adoption procedures: question (B)

� Identification of all assets and liabilities whose recognition is required by the SNC but not by the POC*

� Identification of all assets and liabilities whose recognition is forbidden by the SNC but are recognised by the POC*

� Identification of changes in the classification of assets and liabilities*

� Identification of changes in the measurement of assets and liabilities*

� Other procedures related to first-time adoption of the SNC*

Information system procedures: question (C)

� Change of the accounting code in the information system*

� Change in the financial statements model of the information system

� Preparation of the information system to provide detailed information for the notes to financial statements

� Preparation of an information system to include the possibility of a change in the life, methods of depreciation, and residual value of assets*

� Preparation of the information system to adopt a components approach to plant and equipment*

� Preparation of the information system to provide projections of cash flows necessary for the calculation of impairment*

� Conversion of the management accounting system*

� Other procedures related to the information system*

Other conversion procedures: question (D)

� Training of the financial/accounting department

� Identification of changes in the internal control system and resulting documentation*

� Identification of the cash generation units*

� Identification of the assets and liabilities that will be measured at fair value*

� Identification of methods for assessing fair value*

� Other conversion procedures

The questions added in this study, compared with Guerreiro et al. (2008), are marked with an asterisk.

14 The transition guides displayed by the other Big-four multinational audit firms focused more on the changes IFRS implicate in terms of accounting policies, tax implications or disclosures. At the time of questionnaire design, the Ernst & Young transition guide provided the most useful guidance on preparedness procedures.

96

The four sets of questions represent ordinal variables. Each company was

assigned a score for its responses to each set of questions, corresponding to the sum of

the number of options selected. Accordingly, each question has a different valuation

scale: A from 0 to 10; B from 0 to 5; C from 0 to 8; and D from 0 to 6. The more items

the company selected, the greater the perceived degree of preparation, PREP. However,

the option “not applicable” was available in procedures related to management

accounting [sets A and C] and fair value [set D]. The assessment and conversion

measures have been adjusted for companies who signalled an option was “not

applicable.” Five companies did not answer this set of questions (missing values).

The PREP variable was estimated using Structural Equation Modelling (SEM)

and LISREL software. SEM combines exploratory factor analysis with multiple

regression analysis (Tabachnick & Fidell, 2001). It is often used to confirm a theory

based on prior knowledge about potential relationships among variables. The first step

in a SEM analysis is to specify the model. Then, the model is tested statistically by

simultaneous analysis of the entire system to assess the goodness of fit (Vieira, 2009).

The hypothesised model for PREP is shown in Figure 3.1. The latent variable is

represented with an ellipse and the measured variables are represented with rectangles.

A line with an arrow indicates a hypothesised direct relationship between variables.

Figure 3.1

Preparedness Model

A

B

C

D

PREP

2.77

6.32

6.99

9.51

Chi-Square = 3.83, d.f. = 2, p = 0.148

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In Figure 3.1, the numbers in each arrow represent the t-statistic. These reveal that

all of the observed variables (the four sets of questions) are valid indicators of the PREP

variable since every t value is significant and has an absolute value greater than 1.98

(N=111, t>1.980, p-value<0.05, two-tailed). The t-test is used to assess the null

hypothesis that the correlation coefficient is zero. The non-significant chi-square (p-

value = 0.148) indicates the model fits the data well. The null hypothesis of the chi-

square test is that the sample correlation matrix arose because of the relationships

specified in the LISREL model (Ulman, 2001). Given these results, scores for the latent

variable PREP (as estimated from the LISREL model) become the scores of the

variable.

Frequency statistics for each of the four questions and for the estimated variable

are displayed in Table 3.2. Graph 3.1 provides a histogram of the degree of

preparedness.

Table 3.2

Degree of Preparedness of Large Portuguese Unlisted Companies

A B C D PREP Mean 4.13 3.02 3.34 2.55 3.77 Median 4.00 4.00 3.43 2.00 3.54 Std. Deviation 2.43 1.37 1.85 1.53 1.58 Minimum 0 0 0 0 .00 Maximum 9.00 5.00 7.00 5.00 7.05 Percentiles

25 3.00 2.00 2.00 1.00 2.65 75 6.00 4.00 4.57 4.00 4.90

N Valid 111 Missing 5

Graph 3.1

Histogram of the Degree of Preparedness of Large Portuguese Unlisted companies

0

2

4

6

8

10

12

14

16

18

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5 5,5 6 6,5 7 7,5

Frequency

Degree of preparedness

98

As the right hand column of Table 3.2 shows, the maximum degree of

preparedness (PREP) of any company is 7.05 and the minimum is 0. The maximum

value of 7.05 refers to the most prepared company: that is, the one that has made all the

assessment procedures (with the exception of the assessment of the reactions of the

main business partners) and all the conversion procedures (although it may not have

indicated an option, “Others”). One company has a score of 0, because it intends to

initiate the transition process in the beginning of 2010.

Table 3.2 shows that the average level of PREP is 3.77, approximately half of the

maximum score possible. Only 25% of companies have a PREP value higher than 4.9,

indicating that only a small minority is well prepared.

The profile of the companies with an average PREP score reveals that they have

made:

• three to five assessment procedures,

• all four first-time adoption procedures,

• two to four conversion procedures related to the information system

(with prevalence of conversion of the accounting code), and

• two or three of other conversion procedures (especially professional

training).

5.2 Independent Variables and Control Variables

The independent variables are classified into institutional factors, as follows.

Coercive pressures

PC = 1 if the parent company was involved in decisions regarding the

conversion process, 0 otherwise

NOWN = 1 if the nationality of the owners is exclusively Portuguese, and 0

otherwise

Normative pressures

PA = number of professional accounting associations to which the

respondent belongs

AUD = 1 if the auditor is a Big-four company, 0 otherwise

99

Mimetic pressures

CONS = 1 if consultancy services have been used, 0 otherwise

EXP = 1 if a company has export sales, 0 otherwise

The study includes three control variables: size, parent listing status, and

profitability. SIZE is measured by total assets at the end of the financial year in Euros

(€). Parent company listed status is a dummy variable (LIST), assuming 1 if the parent

company is listed, and 0 otherwise. Profitability is measured by net income divided by

total equity at the end of financial year (ROE).

6. Results

6.1 Descriptive Statistics

All variables were screened for outliers. One univariate outlier was found for

SIZE and another for ROE (standardised scores exceeded 3.29, p-value<0.001, two-

tailed). These two univariate outliers matched with the multivariate outliers (d.f.=10,

Mahalanobis distance>29.588, p-value< 0.001, two-tailed) (Tabachnick & Fidell,

2001). For analysis including the control variables SIZE and ROE, we discarded these

two outliers from the data matrix, leaving a sample of 109.

Table 3.3 displays descriptive statistics for the independent variables, including

the control variables.

Table 3.3

Descriptive Statistics of Independent and Control Variables

Variables

Parent company involved in preparedness

Yes

No

12 (10.8%)

99 (89.2%)

National ownership

Yes

No

68 (61.3%)

43 (38.7%)

Number of professional associations µ = 1.07

σ = 0.465

Audit by Big-four company

Yes

No

75 (67.6%)

36 (32.4%)

100

Use of consulting services

Yes

No

65 (58.6%)

46 (41.4%)

Export company

Yes

No

74 (66.7%)

37 (33.3%)

SIZE (Thousand €) µ = 143.794

σ = 213.786

Parent company listed

Yes

No

34 (30.6%)

77 (67.4%)

Profitability

µ = 17.89 σ = 17.64

The descriptive statistics reveal that only about a tenth of companies has a parent

company involved the preparedness process. The majority of companies has only local

owners, is audited by a Big-four company, has contracted consultancy services, and

engages in export activities. The mean number of professional associations to which the

respondent accountants and CFOs belong is approximately one. Analysis of descriptive

statistics of the control variable SIZE reveals large standard deviations, indicating the

presence of skewed variables (skewness of SIZE = 14.97). The control variable ROE

was also skewed positively (9.44). Only 33% of the companies have a listed parent

company.

6.2 Bivariate Analysis and Multivariate Analysis

We estimate a multiple regression model which assesses the influence of

institutional factors on PREP.

PREP i = β0 + β1 PC i + β2 NOWN i + β3 PA i + β4 AUD i + β5 CONS i + β6 EXP i + C1 SIZE i +

C2 LIST i + C3 ROE i + ε i

The correlation matrix of the dependent variable, independent variables and

control variables is presented in Table 3.4. The positive skewness of the variables SIZE

and ROE was reduced through a logarithmic transformation of these variables. Pearson

101

correlations are displayed for continuous variables; Spearman’s rho is used for

continuous and dummy variables; Cramers’ V is used when both variables are dummy.

Table 3.4

Correlation Matrix for the Dependent, Independent and Control Variables

PREP PC NOWN PA AUD CONS EXP

SIZE

(LOG)

LIST

PREP 1.000

PC .222S** 1.000

NOWN .236S** -.081V 1.000

PA .019P -.035S .018S 1.000

AUD -.038S .026 V -.321V*** .054S 1.000

CONS .149S .031 V -.091 .038S .247 V** 1.000

EXP .247S*** .026 V -.156 V -.145S .197 V** .147 V 1.000

SIZE(LOG) .083P .058S .055S .052P .223S** 172S* .057S 1.000

LIST -.049S .086 V -.370 V*** .101S .287 V*** .020 V .093V .012S 1.000

ROE(LOG) -.137P .008S -.138 S -.255 P*** .058 S -.055 S -.056 S -.093 P .210 S** P, S, V Pearson, Spearman and Cramer correlations, respectively. ***, **, * Correlations significant at 0.01, 0.05 and 0.10, respectively.

Table 3.4 reveals companies for whom the parent company is involved in the

preparedness process have statistically significant differences in terms of PREP

compared to companies that do not have this type of coercive pressure. PREP also

differs significantly between companies that have foreign owners compared to those

that do not. Finally, companies engaging in export activities also have statistically

significant differences in PREP.

Table 3.4 shows the highest correlation is 0.370, indicating the likely absence of

multicollinearity in the regression analysis.15

Two sets of regressions are estimated. Regression 1 examines the effect of

institutional factors on PREP. Regression 2 examines the effect of institutional variables

and control variables on PREP. All assumptions of the multiple regression technique

specified by Gujarati (2003) (correct model specification; linear relationship between

dependent and continuous independent variables; absence of exact collinearity among

the independent variables; normally distributed residuals with zero mean value; and

residuals with constant variance) were fulfilled. Results are displayed in Table 3.5. 15 Nonetheless, inspection of multicollinearity was made.

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Table 3.5

Regression Results

Variables Regression 1 Coefficient

Regression 2 Coefficient

PC 1.176** 1.112** NOWN .561* .528 PA .160 .122 AUD .137 .058 CONS .510* .535* EXP .817** .873*** SIZE (LOG) .026 LIST .195 ROE (LOG) -.776

R-squared 16.9% 18.1% Model significance .003 .015 K-S test for residual normality Z=.058 Z = .030 N 111 109

*, **, *** Significant at 10%, 5% and 1% respectively

Regression 1, which includes only independent variables, indicates that the

independent variables explain 16.9% of the variance in PREP. The R-squared is highly

significant (p-value<0.01). Four characteristics are significant in explaining the

dependent variable: the influence of parent companies (p-value<0.05, two-tailed),

national ownership (p-value<0.10, two-tailed), having consultancy services (p-value

<0.10, two-tailed), and export sales (p-value<0.05, two-tailed). The signs of the

regression coefficients indicate that the influence of the parent companies and national

owners have a positive influence on PREP, consistent with H1 and H2, respectively.

Companies contracting consultancy services and engaged in export activities exhibit a

superior PREP, consistent with H5 and H6. As the variable PREP is bounded between 0

and 7.05 (inclusive), a censored regression was performed (Tobit regression) as a

robustness test. The levels of significance of the independent variables remained the

same, with the exception of variable PC. This increased the statistical significance from

5% to 1%.16

Regression 2 (considering independent and control variables) shows that, when

controlling for size, listing status of parent companies and profitability, the influence of

the parent companies (p-value<0.05, two-tailed), contracting consulting services (p-

value<0.10, two-tailed) and export activities (p-value<0.01, two-tailed), also contribute

significantly in explaining PREP. The signs of the regression coefficients indicate that

all significant variables have a positive influence on PREP. Tobit regression shows all

16 The p-value changed from 0.011 to 0.009.

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significant variables maintain their statistical significance, with the exception of the

NOWN variable, which becomes statistically significant for a p-value of 0.10.17

7. Discussion and Conclusions

This investigation of the preparedness of large Portuguese unlisted companies to

adopt the SNC on 1 January 2010 uses a theoretical framework grounded in new

institutional theory. We reveal that, in the last quarter of 2009, the level of preparedness

was low. The short elapsed time between the formal announcement of the adoption of

the SNC (in April 2009) and formal operationalisation in January 2010 seems to be a

likely explanation for the low degree of preparedness. Nonetheless, the low level of

preparedness suggests there was organisational resistance to changes in the regulatory

environment also. Actions of professionals and organisations are shaped by broader

institutional logics (Thornton & Ocasio, 2008). The prevailing logic of the Continental

tradition (inherent in the Portuguese accounting system) hindered isomorphic pressures

towards adoption of the new laws and standards of the SNC. The new practices and

symbols associated with the new accounting system are bound to a common-law logic

that guides how actors should behave. However, the new normative prescriptions were

yet to be internalised by accountants. Adoption of the SNC implied a shift in the

dominant logic in the accounting field to one that is yet to be accepted as legitimate by

Portuguese companies and by the Portuguese accounting profession. When logics are

consistent and easily taken for granted, they are most influential in a field. However,

like Hyvönen et al. (2009), we confirmed that when competing logics are in play in the

same setting, they can trigger conflict (Owen-Smith & Powell, 2008); and thus, they can

undermine the progress of the preparedness process.

These conclusions are consistent with the non-significant results of the hypotheses

linked to normative pressures. Support of the major Portuguese accounting professional

body (OTOC) for the new accounting rules only became clear after the Portuguese

government issued the Decree-law with the new accounting rules in July 2009. This

support was negotiated between the Portuguese government and the OTOC. As a

concession, the accounting profession’s social status was improved from Chamber to

17 The p-value changed from 0.118 to 0.086.

104

Order. The number of representatives of OTOC on the Portuguese Accounting

Standards Board, sponsored by government, increased from one to two. Only then did

OTOC become more committed to conducting professional training on IFRS, especially

during October and November, 2009. This process of negotiation with institutional

stakeholders to exchange concessions is described by Oliver (1991) as a compromise

strategy (bargaining). This process reveals that professional associations are individual

organisations who pursue goals and promote self-interests actively.

The non-official accountants association APOTEC in its 2009 annual report

(dated March, 2010), indicated that it had asked the President of Portuguese Republic,

Prime Minister, Minister of Finance, and political parties, to postpone the introduction

of the new accounting rules.18 APOTEC was more active in resisting the adoption of the

SNC. However, its strategy of defiance was unsuccessful.

Tolbert and Zucker (1996) contend that institutionalisation involves the

development of some degree of social consensus concerning the value of the new

structure. At the end of 2009, this was not achieved in the case of the new structure

provided by the SNC. Due to the late acceptance of the new accounting rules by the

Portuguese professional accounting bodies, the SNC was not translated into normative

rules capable of guiding professional behaviour. This was particularly the case in the

period of preparedness and the transition to the new accounting system. The resistance

by the Portuguese accounting profession should be understood in the context of a code-

law country, in which the imposition of a common-law logic conflicted with the

prevailing competitive code-law logic. Consequently, additional difficulties were

associated with the accounting change.

Though research on institutional logics usually highlights how this approach

deviates from institutional analysis focusing on isomorphism (Lounsbury, 2007, 2008;

Marquis & Lounsbury, 2007), we reveal a fundamental link between both. Our results

indicate that coercive and mimetic factors are important in understanding the degree of

preparedness. But, due to the resistance of the Portuguese accounting profession in

changing the prevailing logic, normative pressures were not significant factors in the

preparedness of unlisted companies. Results show that participation of a parent

company in decisions regarding conversion procedures (H1), national ownership (H2),

18 See http://www.apotec.pt/fotos/editor2/RelatorioDireccaoCentral2009.pdf (accessed April 2011).

105

consulting services (H5) and engaging in export activities (H6) had a positive influence

on the degree of preparedness.

Higher levels of preparedness of companies in which the parent company is

involved in the conversion process confirm that, due to resource dependency,

companies adapt accounting procedures that accord with the needs of the owners (e.g.

Mezias, 1990; Touron, 2005). The results reflect the desire of corporate conglomerates

for a single accounting system for consolidated and individual accounts. This will help

them to align parent company accounting with the accounting required by their

affiliates.

Companies with only local owners are better prepared to adopt the SNC than

companies with foreign owners, consistent with H2. Thus, national owners influence the

level of preparedness positively. National owners are more aware of the implications of

changing the accounting system than foreign owners, and are more aware of the

importance of consonance with the new rules. They maintain higher expectations about

the success of the conversion process due to legitimacy concerns. This is consistent with

the concept of legitimacy proposed by Suchman (1995) in which there are two

complementary perspectives: an institutional view emphasising how constitutive

societal beliefs become embedded in organisations; and a strategic view emphasising

how legitimacy can be managed to achieve organisational goals. Of the 66 companies

with only national owners, 35 (53%) are subsidiaries of national parent companies that

were making the conversion to the SNC as well. Shared rules and understandings

between national parent companies and their subsidiaries about the appropriate

organisational behaviour in the conversion process influenced levels of preparedness

positively. From the 44 companies that have foreign owners, only four parent

companies have influenced the preparedness of companies. The percentage of

participation of foreign capital shows that 36 companies are controlled by foreign parent

companies. Thus, due to concerns of legitimacy, the internationality of the owners is not

an incentive for unlisted Portuguese companies to be better prepared.

The importance of mimetic behaviours on the levels of preparedness shows a

general tendency for companies to imitate each other’s accounting procedures in order

to appear legitimate in their organisational field. Imitation of accounting practices of

successful organisations has been effective in improving the degree of preparedness,

106

consistent with findings that mimetic mechanisms are a means of gaining competitive

advantage (Collin et al., 2009). Two different dimensions of mimetic pressures

influenced the level of preparedness. First, the decision to engage consultancy

companies and to adopt high quality conversion practices in the conversion process

resulted in companies having higher levels of preparedness to adopt the SNC. Second,

the ritual mimetic behaviour of export organisations that operate in an international

commercial field revealed this to be an important argument for the adoption of IFRS.

Comparison of the results with those of Guerreiro et al. (2008) reveal that

important incentives for listed companies to be prepared to adopt IFRS for consolidated

accounts are not equally important for unlisted companies to be prepared to adopt the

SNC on individual accounts. However, there is one exception: in respect of commercial

international activity.

Guerreiro et al. (2008) concluded that the best prepared companies were large

companies, with low levels of profitability, with commercial internationalisation, and

with multinational auditors. However, size, profitability and auditor type were not

significant in explaining preparedness to adopt the SNC.

The adoption of IFRS/SNC for individual accounts involved a much more

complex and detailed conversion process than for consolidated accounts. Large

companies with more complex structures, and dealing with complex operations, have

found several difficulties in arranging to be fully prepared to adopt the IFRS/SNC in

individual accounts. Multinational audit companies are more prominent in large

companies (as Table 3.4 shows). However, their experience and knowledge of the

SNC/IFRS was insufficient to overcome the complexity of the conversion process in

this type of companies, including the specific requirements of the Portuguese taxation

system for individual accounts. Thus, multinational audit companies are not a

distinctive factor leading to better preparedness, either in large companies, or in smaller

companies, in which they are less present. Lower levels of profitability were also not

related to higher levels of preparedness to adopt the SNC. Guerreiro et al. (2008)

concluded that less profitable listed companies were more eager to adopt a core of

standards that were considered less conservative, and were likely to boost their reported

rate of profitability in capital markets. As unlisted companies rely more on private

information than on public financial statements in contracting with other parties (Ball &

107

Shivakumar, 2005), profitability is not a significant incentive to improve their

preparedness to adopt the SNC. Nonetheless, these differences should take into account

the elapsed time between the two studies, and the different institutional requirements

faced by listed and unlisted companies that obscure a straight comparison.

The main shortcomings of this study are related to survey research. The data

collection assumes that respondents had adequate knowledge to answer the questions,

and that they have answered in a conscientious and truthful way. Additionally, the

scarce literature about the pre-adoption phase of IFRS implies a degree of subjectivity

when operationalising the PREP variable. Although the assessment and conversion

procedures were supported by implementation guides issued by influential accounting

firms, the inclusion of other procedures could result in a different measure that also is

indicative of PREP.

This essay provides a profile of the unlisted companies that had a lower level of

preparedness to adopt SNC standards. It also develops understanding of the conversion

practices of unlisted companies, and explains why unlisted companies have exhibited a

wide-ranging degree of preparedness to adopt the SNC. This knowledge should be

helpful in countries that are yet to adopt IFRS for unlisted companies (e.g. Turkey,

Mexico, Japan). Standard setters, regulators, governments, business and professional

accounting associations will be better able to develop their strategies if they know the

type of unlisted companies that are likely to need encouragement to adopt a new regime

of accounting standards.

The scarce research relating to the process of adoption of IFRS may disguise the

difficulties many companies face during their conversion to these standards. Our study

contributes to the literature on local adoption of IFRS (Alp & Ustundag, 2009; Ding &

Su, 2008; Jaruga et al., 2007) by revealing the importance of the institutional

environment and the need of all three isomorphic forces (normative, coercive and

mimetic) to operate concordantly to achieve de facto application of these standards.

Normative embeddedness appears to have been difficult to overcome due to the taken-

for-grantedness of old values and rules and their embeddedness in the prevailing

institutional logic. This raises some important research questions. To what extent can

coercive and mimetic forces overcome normative resistance in the local adoption of

IFRS, particularly in code-law countries? At what point does coercive and mimetic

108

behaviour become normative behaviour? Subsequent research should address such

questions in other countries, possibly through the application of the model we have

developed here. This would provide further important insight to how the conversion

process evolves and how change in normative values occurs, particularly when

anticipating the difficulties of implementing an IFRS-type accounting.

109

ESSAY 4

Voluntary Adoption of International Financial

Reporting Standards by Large Portuguese Unlisted

Companies - An Institutional Strategic Response?

110

111

1. Introduction

Globalisation of financial and commercial operations has provided strong

incentives for the diffusion of IFRS worldwide. After 2005, the regulatory environment

of the EU and the increased acceptance of IFRS in individual financial statements in

several member-states, encouraged European companies to adopt IFRS (see Cuijpers &

Buijink, 2005).

Additionally, European companies were aware that several other benefits were

likely to accrue from voluntary adoption of IFRS. Multinational companies saw the

benefits of easier consolidation of foreign accounts, greater staff mobility, smoother

business communication processes, and reduced ambiguity in interpreting the financial

data of subsidiaries (Diaconu, 2009; Joshi, 1998). Furthermore, individual companies

were claimed to have contracting-driven incentives to adopt IFRS voluntarily in order to

improve the quality of their financial statements (Francis et al., 2008). IFRS are alleged

to reflect economic substance more than legal form; reveal economic gains and losses in

a more timely fashion; make earnings more informative; provide more useful balance

sheets; and curtail managers’ discretion to manipulate provisions, create hidden

reserves, smooth earnings and hide economic losses from public view (Ball, 2006;

Jaruga et al., 2007). These advantages can reduce information asymmetries, thus

facilitating the contracting process. According to Francis et al. (2008), large private

companies engaged in export activities, and with high levels of external financing, also

have incentives to adopt IFRS voluntarily.

In the 1990s, many studies explored the specific characteristics of firms that had

voluntarily adopted non-local GAAP (e.g. Al-Basteki, 1995; Dumontier & Raffournier,

1998; El-Gazzar et al., 1999; Murphy, 1999). These studies linked the decision to

voluntarily adopt International Accounting Standards (the forerunner to IFRS) to the

enhanced benefits that would accrue to adopting companies if they possessed a

particular set of characteristics. In doing so, these studies did not take account of

different institutional settings. However, later studies of reasons for the choice of non-

local GAAP did analyse institutional features of the settings in which companies

operated (such as level of legal protection of investors, quality of national accounting

standards, development of financial markets; and the quest for legitimacy) (Collin et al.,

112

2009; Cuijpers & Buijink, 2005; Francis et al., 2008; Renders & Gaeremynck, 2007;

Touron, 2005).

This essay examines the voluntary adoption of IFRS from an institutional

perspective rather that from a perspective premised on economic and efficiency

arguments. We support the view that “[t]o survive and prosper... organizations need to

achieve not only technical, operational efficiency but also social legitimacy” (Abernethy

& Chua, 1996: 571). For theoretical support an institutional theory perspective is used

to examine reasons for the voluntary adoption of IFRS by large Portuguese unlisted

companies.

Institutional theory can be instrumental in developing an informed understanding

of the reasons for the voluntary adoption of IFRS because it accommodates relevant

institutional expectations of the organisational field. Accordingly, we adopt an

institutional perspective to argue that the diffusion of organisational practices is

influenced by regulative, normative and cognitive aspects of the institutional

environment (consistent with Scott, 1995).

In this essay, we evaluate the role of strategic choice by applying the framework

proposed by Oliver (1991) in order to better understand why Portuguese companies

voluntarily decided to adopt IFRS. Our central hypothesis is that choice among different

accounting standards regimes (different institutional forms) is a strategic response to the

institutional pressures that affect companies.

Thus, this study is a response to calls by Carpenter and Feroz (2001) for further

testing of the theoretical framework proposed by Oliver (1991); and a response to calls

for more research into “[q]uantitative perceptual measures of the 10 proposed

institutional antecedents to assess their predictive validity and allow refinement of

Oliver’s (1991) typology in light of compiled empirical evidence” (Jamali, 2010: 635).

Although some studies have tested the framework proposed by Oliver (1991) and have

provided supporting evidence (Abernethy & Chua, 1996; Clemens & Douglas, 2005;

Etherington & Richardson, 1994; Goodstein, 1994; Ingram & Simons, 1995; Jamali,

2010; Milliken et al., 1998; Modell, 2001), Oliver’s full model has never been tested in

the financial accounting field. Only two partial applications have been conducted. A

partial test, by Carpenter and Feroz (2001), identified some of the strategic responses

proposed by Oliver (1991), in a study of how four US states responded to institutional

113

pressures to adopt generally accepted accounting principles. Hyvönen et al. (2009) have

used also Oliver’s model to understand how differences in accounting institutional

logics explain differences in the reactions to external pressures of two units of the

Finnish Defence Forces.

This essay addresses a major criticism of institutional theory: that it downplays

the role of agency and interest in organisational decision processes (Covaleski &

Dirsmith, 1988; DiMaggio, 1988; Oliver, 1991; Powell, 1991; Scott, 1987). It applies

the framework of Oliver (1991) to analyse the decision of large Portuguese

organisations to select whether to adopt IFRS or maintain the regime of Portuguese

accounting standards. Thereby, this essay explains the purposive action of Portuguese

organisations within an institutional approach.

The results are based on responses to a questionnaire survey that was sent to the

500 largest Portuguese companies during September 2009, four months prior the

adoption of the new Portuguese accounting system, the SNC. In the period 2005-2009,

consistent with Portuguese legislation, IFRS were permitted for use by listed companies

in their individual accounts and by unlisted companies in consolidated accounts and in

their individual accounts (provided they maintained another accounting system for

individual accounts that accorded with the national accounting system and had their

accounts publicly certified). However, truly voluntary adoption of IFRS meant that any

company could adopt IFRS, even if only for internal use.19 Thus, the adoption of IFRS

by Portuguese companies was a voluntary decision unconstrained by regulatory

mandate. Consequently, our investigation should provide better understanding of the

tradeoffs these companies faced in choosing voluntarily among alternative accounting

standards, and it should highlight the incentives that were influential in adopting IFRS

(Francis et al., 2008).

We find that voluntary adoption of IFRS by large Portuguese companies generally

was an acquiescence to institutional demands. The decision was not one of mindless

conformity, but a strategic response involving pro-active choice and reflecting

organisational self-interest. All five institutional antecedents included in Oliver’s (1991)

framework (cause, constituents, content, control and context) provided significant

explanations for the voluntary adoption of IFRS. They reveal the adequacy of this

framework in this field of accounting research.

19Information about the voluntary use of IFRS was collected through the questionnaire survey.

114

The following section discusses the theoretical background of the study.

Thereafter, hypotheses are developed, data collection procedures are specified, the

model is defined, and explanatory variables are explored. Finally, the results and main

conclusions are presented.

2. Theoretical Background

Some institutional theorists have contended that organisations have no option but

to comply when confronted with the demands of external institutions. “Conform, either

now or later!” (Scott, 2001: 170). Institutional expectations are viewed as agreements

about the correct way to do things. However, the interests of organisations have been

underemphasised in studies that have sought to understand institutionalised practices.

The focus of investigation has been on the impact of institutional pressures on structural

conformity and isomorphism. Such pressures are effected through mechanisms such as

societal norms, professional training, accreditation practices, and state regulation

(DiMaggio & Powell, 1983; Meyer & Rowan, 1977). By emphasising the effect of the

institutional environment on structural conformity and isomorphism, institutional

theorists have been criticised for being inattentive to the role of active agency, power

and resistance in organisation-environment relations (Covaleski & Dirsmith, 1988;

Dillard et al., 2004; DiMaggio, 1988; Lounsbury, 2008).

Several recent studies have explored whether organisations in the same field are

subject equally to identical institutional pressures. This seems sensible because

organisations vary in the strength of cognitive beliefs and the normative controls to

which they are subject over space and time (Scott, 2001). Institutional theory can only

explain different organisational responses if organisations are seen as heterogeneous

entities composed of functionally differentiated groups pursuing goals and promoting

interests, rather than as being motivated exclusively by the quest for legitimacy and as

outcomes of institutionalised practices. Thus, organisational responses to institutional

prescriptions are a function of these internal dynamics (Greenwood & Hinings, 1996).

These issues have been conceptualised in an institutional framework by argument that

complete and uncontested institutionalisation is rare; and that interests and agency help

determine how organisations adapt to institutional environments (Beckert, 1999; Dillard

et al., 2004; DiMaggio, 1988; Lounsbury, 2008; Oliver, 1991; Scott, 2001). The

115

adoption of a practice is conceived to represent an organisation’s choices and to reflect

their specific needs and interests.

Although there is value in acknowledging that organisations can react to

institutional pressures in different ways, it is also important to analyse the extent to

which institutional environments are influential and delimiting. Institutions set limits on

appropriate ways for organisations to act, including in respect of how organisations

respond to institutional pressures and how they choose strategies to pursue. Strategies

appropriate in one organisational field can be inappropriate in another. Accordingly, not

only are structures shaped institutionally (as early institutionalist theorists argued) but

organisational strategies are defined institutionally as well (Scott, 2001). Consistent

with this idea, Oliver (1991) applied the convergent insights of institutional theory and

resource dependence theory to demonstrate how, in response to institutional pressures,

company behaviour could vary from passive conformity to active resistance. Both of

these perspectives have similar assumptions: that organisational choice is possible

within the context of external constraints; and that organisations attempt to obtain

stability and legitimacy.

Drawing on both theories, Oliver (1991) developed a preliminary conceptual

framework to predict the strategic alternative responses of organisations to institutional

pressures. This framework emphasised the role of organisational self-interests and

active agency in organisational responses. Her approach suggested that organisations

are not as powerless or as passive as conceived in earlier versions of institutional theory.

Oliver (1991), in identifying the strategic responses organisations enact, suggested that

organisations can react in direct response to the institutional conformity processes that

affect them. They can do so with a strategic response from a continuum of possible

responses. Oliver (1991) proposed five strategic responses that varied in terms of active

agency from passivity to active resistance. She labelled them acquiescence,

compromise, avoidance, defiance and manipulation. They are explained below.

Acquiescence: this entails habit, imitation or compliance. It means that

organisations commonly accede to institutional pressures to enhance their legitimacy

and social support.

Compromise: this incorporates a family of responses that includes balancing,

pacifying or bargaining with external constituents. These three tactics seek to conform

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and accommodate institutional expectation. However, in contrast to acquiescence, the

degree of compliance is only partial and organisations are more active in promoting

their interests.

Avoidance: this is an organisational attempt to preclude conformity. This

behaviour is conceived as having the form of concealment non-conformity, buffering

from institutional pressures (decoupling), or escaping from institutional rules or

expectations.

Defiance: this represents unequivocal rejection of institutional norms and

expectations. Defiant organisations are highly public in resisting institutional pressures

to conform. Such strategic behaviour implies increased active resistance to institutional

processes and assumes three forms: dismissal, challenge and attack.

Manipulation: this is the most active response to institutional pressures. It implies

actively changing the expectations or the sources that seek to express or enforce

institutional pressures. Those pressures and expectations are not taken as a given

constraint to be obeyed or defied. Instead, organisations co-opt by persuading

institutional constituents to join them, to influence institutionalised values and beliefs,

or to control the source, allocation or expression of social approval and legitimation.

Jamali (2010) presents these strategic responses along a continuum ranging from

conformity to resistance (Figure 4.1).

Figure 4.1

Continuum of Possible Responses to Institutional Pressures (Jamali, 2010)

Having identified the variety of behaviours organisations can exhibit in response

to institutional pressures, Oliver (1991) then proposed conditions that limited the

actions of organisations. She developed ten hypotheses that corresponded to five

institutional antecedents – cause, constituents, content, control and context. Those

Corporate

conformity Corporate

resistance

Acquiescence Habit Imitate Comply

Compromise

Balance Pacify Bargain

Avoidance

Conceal Buffer Escape

Defiance Dismiss Challenge Attack

Manipulation

Co-opt Influence Control

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hypotheses addressed the characteristics of institutional pressures that predisposed

organisations to adopt a particular strategic response. (See Table 4.1 for a summary.)

Table 4.1

Institutional Antecedents and Predicted Strategic Responses (Oliver, 1991)

Predictive Factor Strategic Responses

Acquiesce Compromise Avoid Defy Manipulate

Cause Legitimacy Efficiency

High High

Low Low

Low Low

Low Low

Low Low

Constituents Multiplicity Dependence

Low High

High High

High Moderate

High Low

High Low

Content Consistency Constraint

High Low

Moderate Moderate

Moderate High

Low High

Low High

Control Coercion Diffusion

High High

Moderate High

Moderate Moderate

Low Low

Low Low

Context

Uncertainty Interconnectedness

High High

High High

High Moderate

Low Low

Low Low

3. The Relationship between Institutional Pressures and Strategic Responses

This essay investigates the importance of strategic choice and the institutional

environment of organisations on the selection of accounting standards. As explained

earlier, and in greater detail below, the institutional environment of large companies in

the EU encouraged the voluntary adoption of IFRS. According to Oliver’s (1991)

framework, organisational responses of companies (including large Portuguese unlisted

companies) to institutional pressures to adopt IFRS should have depended on:

• why these pressures were being exerted (cause)

• who was exerting these pressures (constituents)

• what these pressures were (content)

• how these pressures were exerted (control) and

• where the pressures occurred (context).

The hypotheses outlined below specify the effects of each institutional antecedent

on the responsiveness of large Portuguese companies to institutional pressures to adopt

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IFRS. High levels of responsiveness are identified as an acquiescence strategy. Lower

levels of responsiveness are identified as a resistance strategy.

3.1 Cause

Oliver (1991) defined the cause of institutional pressures as the rationales,

expectations and intended objectives that underlie institutional pressures for conformity.

Generally, these institutional pressures are exerted to make organisations socially

conformist or to increase economic efficiency or profitability. Acquiescence is the most

probable strategic response to institutional pressures when organisations anticipate that

conformity will enhance legitimacy (Meyer & Rowan, 1977; Oliver, 1991) or economic

gain. However, when the legitimacy or economic gain expected from conformity to

institutional pressures is low, organisations will compromise on the requirements for

conformity; or will avoid the conditions implied by conformity; or will defy the

institutional requirements to which they should conform; or will manipulate the

conditions of conformity.

Accounting standards are used as rationalisations to maintain the appearance of

legitimacy (Dillard et al., 2004). They are an extra-organisational form of rationality

that can reveal organisational commitment to rational behaviours (Touron, 2005).

Accordingly, the diffusion of IFRS is highly explainable through the legitimacy these

standards confer (Chua & Taylor, 2008). Considerations of legitimacy and social fitness

are particularly important for large organisations. Because of their size, large

organisations are subject to much attention from the state, media and professional

organisations (Goodstein, 1994). Thus, large companies are highly visible and

accountable by institutional actors. They experience high levels of social and political

pressure to act in a socially desirable manner (Brammer & Pavelin, 2004; Islam &

Deegan, 2010). Consequently, they have strong incentives to make decisions that imbue

them with legitimacy (Goodstein, 1994; Ingram & Simons, 1995). Adoption of IFRS is

one means of achieving legitimacy.

H1: The greater the size of an organisation, the greater is the level of

responsiveness to institutional pressures for voluntary adoption of IFRS.

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Economic gain can be expected also from the adoption of IFRS. An important

source of demand for financial reporting is the contracting role of accounting: many

contractual arrangements involving organisations require accounting outputs (Watts &

Zimmerman, 1986). Accordingly, high quality accounting standards should facilitate

contractual commitments by allowing outside parties to monitor the performance of

companies (Francis et al., 2008). If IFRS are high quality standards, as Barth et al.

(2008) conclude, adoption of IFRS should provide companies with new business

opportunities. In this vein, several studies have found that firms using IFRS voluntarily

have more extensive foreign operations (Cuijpers & Buijink, 2005; Dumontier &

Raffournier, 1998; El-Gazzar et al., 1999; Francis et al., 2008; Murphy, 1999). If so,

this seems to indicate that IFRS fosters national and international business

opportunities.

H2: The higher the degree of economic gain expected to be attained by large

companies from the adoption of IFRS, the greater is the level of

responsiveness to institutional pressures for voluntary adoption of IFRS.

3.2 Constituents

Organisations are affected by a myriad of potentially conflicting forces (such as

laws, regulations or expectations). These come from a variety of sources (the State,

professions, interest groups and the general public) (Oliver, 1991). Organisations

engage in acquiescence responses when the degree of the multiple, conflicting

constituents’ expectations is low. However, when multiplicity is high, there will be

more resistance to institutional pressures. Acquiescence to one constituent precludes an

organisation from conforming to alternative constituents with conflicting expectations.

In this case possible strategic responses to institutional pressures include compromise,

avoidance, defiance and manipulation.

H3: The lower the degree of conflicting expectations by constituents of large

companies, the greater is the level of responsiveness to institutional

pressures for voluntary adoption of IFRS.

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Organisational responses are affected also by the degree of external dependence

on the pressure exerted by constituents. As sources of institutional pressures increase,

acquiescence becomes the most likely response (Oliver, 1991). An important source of

dependence on external constituents is financial dependence on banks and shareholders

to serve debt and equity capital needs. In companies with high debt-to-equity ratios,

adoption of IFRS can increase the capacity of financial statements to monitor agency

relationships between creditors and shareholders (Dumontier & Raffournier, 1998). For

shareholders, companies in multinational groups should find the adoption of IFRS

useful due to easier consolidation procedures and lower costs of monitoring and

controlling resource exchanges (Palmer et al., 1993).

H4: The higher the degree of external dependence on constituents of large

companies, the greater is the level of responsiveness to institutional

pressures for voluntary adoption of IFRS.

H4.1: The higher the debt-to-equity ratio of large companies, the greater

is the propensity of companies to adopt IFRS voluntarily.

H4.2: Large companies that are subsidiaries of multinational companies

have greater propensity to adopt IFRS voluntarily than do large

companies that are not subsidiaries of multinational companies.

3.3 Content

Oliver (1991) contends that when institutional pressures or expectations are

consistent with the goals of an organisation, there is more willingness to acquiesce to

them. When institutional pressures are not consistent, organisations begin to doubt the

legitimacy of institutional expectations. This leads to more active strategies.

Since 2005, listed companies in the EU have had to comply with IFRS in their

consolidated accounts. Thus, subsidiaries of parent companies with listed securities are

more willing to adopt IFRS voluntarily: IFRS are consistent with their objectives to

make consolidation of accounts easier and cheaper and to increase the harmonisation of

internal information. Additionally, in 2010, Portugal implemented a new accounting

system (the SNC) based on IFRS. Companies that found the adoption of the SNC

timely, acknowledged the advantages of these standards. In doing so, they revealed the

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consistency of these standards with their organisational goals. However, those

companies that found the adoption of the SNC untimely signalled that there were no

advantages for them in adopting these standards: that is, SNC standards did not align

with their organisational goals.

H5: The higher the consistency of the organisational goals of large

companies with the goals of IFRS, the greater is the level of

responsiveness to institutional pressures for voluntary adoption of IFRS.

H5.1: Large companies with listed parent companies have a greater

propensity to adopt IFRS voluntarily than do large companies with

unlisted parent companies.

H5.2: The higher the level of concurrence by large companies that the

new accounting system in 2010 would be timely for them, the greater is

their propensity to adopt IFRS voluntarily.

The loss of autonomy associated with pressures to conform is hypothesised to

predict the likelihood of an organisation complying or resisting these pressures (Oliver,

1991). Organisations are expected to acquiesce more readily to institutional pressures

that do not threaten their decision-making autonomy. Such pressures might arise in

respect of resource allocation or organisational administration (Oliver, 1991). In most

Continental European countries, IFRS require the disclosure of more information. The

accounting choice available to managers using IFRS is restricted when compared to

local accounting standards (Ashbaugh, 2001; Ashbaugh & Pincus, 2001). As a

consequence, a switch to IFRS encourages less accounting discretion and a loss of

private benefits for company insiders (Renders & Gaeremynck, 2007).

H6: The lower the degree of discretionary constraints that large companies

associate with IFRS, the greater is the level of responsiveness to

institutional pressures for voluntary adoption of IFRS.

3.4 Control

Institutional control refers to the means by which pressures are imposed on

organisations: it includes legal coercion and voluntary diffusion (Oliver, 1991).

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Acquiescence is likely to occur when legal coercion is high and the consequences of

non-compliance are punitive and strictly enforced. However, in the Portuguese context,

adoption of IFRS was voluntary: between 2005 and 2009 no laws or enforcement

mechanisms could be applied to any Portuguese company that adopted IFRS

voluntarily. So, in terms of control, this study will only test the hypothesis relating to

the diffusion of IFRS.

If are institutional rules or norms more broadly diffused and supported, it is more

likely that organisations will conform to these pressures. Institutionalisation occurs as

the density of adoption of organisational practices provides cognitive legitimacy. These

practices become taken-for-granted as the natural and appropriate arrangement

(Greenwood et al., 2002). This is because their social validity become largely

unquestioned (DiMaggio & Powell, 1983; Fligstein, 1985; Tolbert & Zucker, 1983).

H7: The greater the degree of international diffusion of IFRS as perceived by

large companies, the greater is the level of responsiveness to institutional

pressures for voluntary adoption of IFRS.

3.5 Context

Institutional context is defined by Oliver (1991) as the conditions within which

institutional pressures are exerted on organisations – specifically, the extent of

environmental uncertainty and interconnectedness. Oliver argues that organisational

decision makers generally prefer stability and predictability. So, when companies face

high environmental uncertainty, they acquiesce to institutional pressures because

institutional conformity will protect them from environmental turbulence (Meyer &

Rowan, 1977). Additionally, compromise and avoidance are viewed as strategic

responses that are expected in environments of high uncertainty. Adoption of a high

quality set of accounting standards (such as IFRS) can help companies to cope with

uncertain environments.

H8: The greater the level of environmental uncertainty faced by large

companies, the greater is the level of responsiveness to institutional

pressures for voluntary adoption of IFRS.

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A high degree of interconnection between organisations facilitates the diffusion of

institutional norms and demands, encouraging conformity with them (Oliver, 1991). In

highly interconnected environments, norms are diffused through relational channels that

lead to more consensus about them and to greater ubiquity of institutional effects. This

is consistent with acquiescence to institutional pressures. Professional and trade

associations are important conduits for the diffusion of institutional norms and

expectations because they confer organizational legitimacy on normative grounds

(DiMaggio & Powell, 1983). Additionally, they promote the interconnectedness of

institutional environments (Goodstein, 1994). Organisational interconnectedness is

more likely to occur in less fragmented or competitive environments that encourage the

spread of institutional consensus and conformity (Oliver, 1991). Strong cooperation in

organisational fields leads companies to be less active and more willing to cope with

institutional demands (Clemens & Douglas, 2005; Goodstein, 1994).

H9: The greater the interconnectedness of large companies with the

environment, the greater is the level of responsiveness to institutional

pressures for voluntary adoption of IFRS.

H9.1: The greater the number of industry associations to which large

companies belong, the greater is the propensity to adopt IFRS

voluntarily.

H9.2: The higher the degree of organisation of the industry in which

large companies operate, the greater is the propensity to adopt IFRS

voluntarily.

4. Method

4.1 Sample

Data were collected using a questionnaire survey that could be completed by both

(or either) the CFO and accountant in each of the 500 largest Portuguese companies in

September 2009.20 The complementarities of functional responsibilities between CFOs

and accountants enabled them to provide good insight to accounting practices and to the

20 This list of companies, reported to 2007, was published in the management magazine “Exame” in 2008. Dun & Bradstreet provided the financial data for 2007 for these companies.

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institutional environment of their organisations. Pre-survey contact was made with the

surveyed companies during the month prior to delivery. The questionnaire was

evaluated for readability, completeness and clarity through five pilot tests prior to

despatch, consistent with the advice of Salant and Dillman (1994). During October and

November of 2009 three follow-up contacts were made with non-respondents.

Of an initial sample of 500 companies, 26 were removed. Ten companies had

listed securities and had been obliged to comply with IFRS from 2005; 13 companies

were state hospitals and were required to apply a specific accounting plan approved by

the Ministry of Health; and 3 companies had been acquired by other companies. Thus,

the final population comprised 474 companies. Of these, 158 completed and returned

the questionnaire, indicating a response rate of 33.4%. This is a typical response rate in

unsolicited surveys (Nazari et al., 2006).

Non-response bias was investigated by comparing the representativeness of the

distribution of non-respondents and the distribution of respondents, in terms of turnover

and industry (see Fullerton & McWatters, 2002). The Komolgorov-Smirnov z test

confirmed that turnover was not distributed normally (p = 0.000). Consequently, the

Mann-Whitney U non-parametric test revealed that differences between respondents

and non-respondents were not statistically significant in terms of turnover (p = 0.927).

Chi-square tests revealed no significant differences between responding and non-

responding companies in industry (p = 0.135). Accordingly, the sample was deemed to

be representative of the underlying population.

Nonetheless, lack of information on the rate of voluntary adoption of IFRS in the

population renders it impossible to infer whether the sample is biased towards firms that

adopted IFRS voluntarily.

4.2 Measurement of Variables

Consistent with Oliver’s (1991) suggestions for future research, our questionnaire

included questions intended to provide information to test the validity of Oliver’s

model. Independent variables were classified into the five institutional antecedents

proposed by Oliver (1991).

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Scale variables were evaluated using a 5-point Likert-type scale. The overall

average of missing data was 20%. Those data were not missing completely at random

(MCAR) (Little’s MCAR test with Chi-Square = 1246.98, d.f. = 1154, p = .029).

However, since Separate Variance t Tests showed that missing values are missing at

random (p > 0.002) 21, the Expectation Maximisation method was used to estimate

missing values.

4.2.1 Cause

The quest for legitimacy is associated with size, as measured by the value of

assets in financial statements (variable SIZE).22 The perceived economic gain (variable

ECG) is evaluated through the level of agreement with the statement that adoption of

IFRS, in an internationalisation context could provide more business opportunities to a

company. This was evaluated on a 5-point Likert-type scale, ranging from “Totally

disagree” to “Totally agree”.

4.2.2 Constituents

For the multiplicity of constituents (MLTC), respondents were asked to evaluate

the degree of homogeneity of their customers, competition, shareholders, creditors and

market. This was measured on a five-point Likert-type scale, ranging from “Extremely

homogeneous” to “Not homogeneous.” Cronbach’s Alpha if item deleted led to the

elimination of responses regarding the homogeneity of shareholders and the

homogeneity of creditors.23 The final Cronbach’s Alpha of the three items was 0.736. A

Categorical Principal Components Analysis (CPCA) of these three items yielded a

factor that explains 65.9% of the variance of the original variables, revealing that the

21 This level of significance was adjusted for a family-wise Type I error rate for the 26 t-tests for each variable. The criterion for assessing the relationship of missing data was set at α = 0.002 (see Tabachnick & Fidell, 2001, p.551). 22 Alternative explanations for the voluntary adoption of IFRS by large companies include those associated with the higher political costs these companies face (Watts & Zimmerman, 1986) and the higher level of resources they have. To assess whether larger Portuguese companies are engaged actively in searching for legitimacy, we analysed the relationship between size and disclosure of sustainability reports. Disclosure of sustainability reports usually is made by companies that search for legitimacy and use this as a legitimising tool (e.g. Aerts & Cormier, 2009). A Mann-Whitney U-test confirmed that the size of companies disclosing a sustainability report is significantly higher than the size of companies not disclosing such a report (p=0.001). This confirms that larger companies are more engaged in actions that increase their legitimacy. 23 Elimination of these items improved construct reliability.

126

“constituents construct” is reliable and uni-dimensional. Consequently, the component

variable was used in the statistical analyses reported later.

The pressure of external constituents was measured by two variables: first, DEPC,

the debt-to-equity ratio companies; and DEPMN, a dummy variable assigned a score of

1 if a company was a subsidiary of a multinational company, and 0 otherwise.

4.2.3 Content

Consistency with organisational goals was evaluated by a dummy variable with a

score of 1 if the parent company is listed, and 0 otherwise (CLIST); and by asking

respondents their opinion of the timeliness of the new accounting system in 2010 for

their companies (CTIME). Responses were recorded on a five point Likert-type scale,

ranging from “Extremely untimely” to “Extremely timely”.

The level of discretionary constraints imposed by IFRS was assessed using the

variable DCON. We posed a question about the degree of autonomy in organisational

decisions allowable by IFRS, compared to national accounting system. We rated this

using a Likert scale that varied from “Much less autonomy” to “Much more autonomy”.

4.2.4 Control

The degree of international diffusion of IFRS that was perceived by large

Portuguese companies (variable INTD) was evaluated through the level of agreement

with the statement that increased international acceptance of IFRS in recent years has

made the widespread adoption of IFRS by businesses of all kinds inevitable. This was

evaluated by a five point Likert-type scale, ranging from “Totally disagree” to “Totally

agree.”

4.2.5 Context

To investigate the influence of uncertainty on strategic responses, Oliver (1991)

proposed that managers should be asked about the degree of confidence they had in

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predicting the future in terms of several key dimensions of their environment.

Accordingly, to assess the level of uncertainty of the organisational environment, the

questionnaire included thirteen questions about company capacity to predict the

evolution of several environmental factors. These were evaluated through a five point

Likert-type scale, ranging from “None” to “Very high.” These questions were

associated with the categories of risk proposed by Lajili and Zéghal (2005), that is:

financial risk (changes in the interest rate and in access to financial funds), strategic risk

(changes in competition, market prices and market share), government regulation risk

(changes in government regulation and taxation), operational risk (technical failures,

human errors and personnel accidents), political risk (risks due to conducting business

internationally), technological risk (risks due to rapid technological change) and

accounting risk (risks arising from evolution of accounting standards).

Cronbach’s Alpha of the thirteen items was 0.880. A CPCA of these items

revealed three components of uncertainty with eigenvalues greater than 1. These

explained 66.2% of the variance of the original variables. The component loadings

indicated that the first component (UNC_E) explained the uncertainty of the external

environment (including changes in interest rates, strategic risk, government regulation

risk, political risk, risk of conducting business internationally, technological risk and

accounting risk); the second component (UNC_O) explained uncertainty related to

operational risk; and the third component (UNC_F) explained uncertainty related to the

financial risk of accessing funds. The three component scores were used in the statistical

analyses reported later.

Interconnectedness was measured by two variables: the number of industry

associations to which companies belong (ICASS) and the opinion of respondents about

the degree of organisation of their industry (ICSECT). This was measured on a five

point Likert-type scale, varying from “Not organised” to “Extremely well organised”.

In summary, the independent variables are classified into predictive factors as

follows:

128

Cause:

Legitimacy SIZE = Total assets

Efficiency ECG = Opinion about the economic gain perceived from

IFRS adoption

Constituents:

Multiplicity MLTC = Scores estimated through CPCA

Dependence DEPC

DEPMN

= the debt-to-equity ratio

= 1 if a company was a subsidiary of a multinational

company, 0 otherwise

Content:

Consistency CLIST

CTIME

= 1 if the parent company is listed, 0 otherwise;

= Opinion about the timeliness of the new accounting

system in 2010

Constraint DCON = Opinion about the degree of autonomy in

organisational decisions allowable by IFRS,

compared to national accounting system

Control:

Diffusion INTD = Opinion on whether international acceptance of

IFRS in recent years has made the widespread

adoption of IFRS by businesses of all kinds

inevitable

Context:

Uncertainty UNC_E

UNC_O

UNC_F

= Scores estimated through CPCA

Interconnec

tedness

ICASS

ICSECT

= Number of industry associations to which

companies belong

= Opinion about the degree of organisation of their

industry

129

5. Results

5.1 Descriptive Statistics and Univariate Results

Descriptive statistics for the continuous variables used to test hypotheses are

reported in Table 4.2. Of the 158 companies completing and returning the questionnaire,

116 used the national accounting system (73.4%) while the remaining 42 used IFRS

(26.6%). Data were screened for outliers according to a method advocated by

Tabachnick and Fidell (2001) (standardised scores >3.29, p<0.001). Accordingly, one

case with a significant extreme value for SIZE and one case for DEPC were discarded.

The average size of companies adopting IFRS voluntarily is considerably larger

than for companies that continued to use local accounting standards. The debt-to-equity

ratio (DEPC) was also higher for IFRS adopters.

To assess differences between the companies that adopted IFRS voluntarily and

those that used the national accounting system, we performed a Komolgorov-Smirnov z

test for the continuous variables to assess normality of the distribution. Only UNC_E

and UNC_F were distributed normally (p=.200). Therefore, differences between the

groups of companies were tested using a T-test for these variables. A non-parametric

Mann-Whitney U-test was used for the other continuous variables and ordinal variables.

Chi-square tests were used for dummy variables.

Table 4.2 reveals statistically significant differences for size and listing status of

parent companies between companies that adopted IFRS voluntarily and companies that

used the national accounting system. In addition, these two groups of companies have

significantly different opinions regarding the timeliness of the imposition of the new

accounting system (SNC) for them in 2010. Significant differences were found as well

in terms of the level of discretionary constraints imposed by IFRS, and the degree of

international diffusion of IFRS.

Table 4.2

Descriptive Statistics and Univariate Tests

Variables Number of

observations

IFRS

Companies

Non-IFRS

companies

Student

t-test

Mann-

Whitney U-test

Chi-square test

SIZE (T€) 157 µ = 261,857 σ = 313,493

µ = 139,471 σ = 210,148

Z = -3.521***

ECG 158 µ = 3.40

σ = 1.014

µ = 3.65

σ = .837 Z = -1.192

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MLTC 158 µ = 0.12 σ = 1.23

µ = -0.04 σ = 0.91

Z = -0.569

DEPC 157 µ = 65.44 σ = 23.02

µ = 62.53 σ = 20.63

Z = -0.891

DEPMN 158 1 = 15 (36%)

0 = 27 (65%)

1 = 37 (32%)

0 = 79 (68%) χ² = 0.204

CLIST 158 1 = 28 (67%)

0 = 14 (33%)

1 = 33 (28%)

0 = 83 (72%) χ² = 19.002***

CTIME 158 µ = 3.48

σ = .773

µ = 2.90

σ = .773 Z = -3.899***

DCON 158 µ = 2.98

σ = .897

µ = 3.53

σ = .727 Z = -3.729***

INTD 158 µ = 4.26

σ = .544

µ = 4.01

σ = .653 Z = -2.1631**

UNC_E 158 µ = 0.05 σ = 0.94

µ = -0.02 σ = 1.03

t =-0.356

UNC_O 158 µ = 0.15 σ = 1.09

µ = -0.06 σ = 0.97

Z = -1.163

UNC_F 158 µ = 0.05 σ = 1.08

µ = -0.02 σ = 0.98

t = -0.352

ICASS 158 µ = 1.81 σ = 2.05

µ = 1.84 σ = 2.55

Z =-0.123

ICSECT 158 µ = 3.67

σ = .721

µ = 3.43

σ = .935 Z = -1.468

**, *** Significant at 5%, 1% level, respectively.

5.2 Logit Regression

A logistic regression model was estimated to test the hypotheses formulated

earlier and to confirm the univariate results. The method adopted was similar to that

used in other studies of the voluntary adoption of non-local GAAP (Cuijpers & Buijink,

2005; Dumontier & Raffournier, 1998; El-Gazzar et al., 1999; Francis et al., 2008). In

our model, ADOPT equals 1 in companies using IFRS voluntarily, and 0 in companies

that apply the national accounting system.

ADOPT i = β0 + β1SIZE i + β2ECG i + β3MLTC i + β4DEPC i + β5DEPMN i + β6CLIST i +

β7CTIME i + β8DCON i + β9INTD i + β10UNC_E i + β11UNC_O i + β12UNC_F i +

β13ICASS i + β14ICSECT I + ε i

Because independent continuous variables have different measurement scales, we

standardised these predictors before the analysis began. Thereby, we obtained the

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respective standardised coefficients and odds ratios [Exp(B)] that we needed, enabling

them to be compared (Tabachnick & Fidell, 2001). Analysis of residuals of the initial

logit model (156 cases), indicated seven outliers.24 Thus, we estimated the model with

these seven cases (Model A) and without these seven cases (Model B). This enabled us

to assess differences in the overall results, particularly in terms of the accuracy rate of

the model. No multicollinearity was evident.25 Results for both models are displayed in

Table 4.3.

Table 4.3

Logit Regression Results

Independent

variable

Model A Model B

Coefficient S.E. Exp(B) Coefficient S.E. Exp(B)

ZSIZE 1.396** 0.565 4.041 2.152** 0.851 8.599 ZECG -0.051 0.265 0.951 0.003 0.330 1.003 ZMLTC 0.271 0.269 1.311 0.343 0.337 1.410 ZDEPC 0.036 0.377 1.036 -0.446 0528 0.640 DEPMN 0.712 0.543 2.039 1.499** 0.720 4.476 CLIST 1.710*** 0519 5.530 2.853*** 0.819 17.341 ZCTIME 1.223*** 0.320 3.397 2.466*** 0.574 11.772 ZDCON -1.028*** 0.336 0.358 -1.792*** 0.567 0.167 ZINTD 0.408 0.308 1.503 0.363 0.410 1.438 ZUNC_E -0.277 0.273 0.758 -1.158*** 0.432 0.314 ZUNC_O 0.207 0.246 1.231 0.340 0.296 1.405 ZUNC_F 0.036 0.242 1.036 0.034 0.307 1.035 ZICASS -0.061 0.227 0.941 -0.225 0.283 0.799 ZICSECT 0.330 0.284 1.391 0.888** 0.386 2.430 Contant -2.429*** 0.450 0.088 -4.247*** 0.891 0.014

N 156 149 Model significance 0.000 0.000 % predicted 81.4 85.9 Nagelkerke

R2

51.3 68.4

**, *** Significant at 5%, 1% level, respectively.

Model A makes correct predictions 81.4% of the time, with a chi-square

significant at 1%. The strength of association of Model A, measured by Nagelkerke R2

is 51%. Thus, the voluntary adoption of IFRS is more likely to occur in larger

companies, in firms with parent companies with listed securities, and in companies for

which the adoption of the SNC was timely. Firms adopting IFRS find this core of

24 Seven cases with studentised residuals greater than ± 2.0 were identified. These cases are very poorly predicted by the solution. They are in one category of the outcome (e.g. 1 – adopt IFRS) but the solution predicts them to have a high probability of being in another category (e.g. 0 – do not adopt IFRS). 25 In logistic regression, high correlation among predictors is signalled by very high standard errors for parameter estimates (Tabachnick & Fidell, 2001). Table 4.3 shows no standard errors to be exceptionally large for estimated parameters.

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standards more restrictive than companies adopting the national accounting system.

Opinions about the international diffusion of IFRS are not significantly different

between IFRS adopters and non-adopters, contrary to the univariate analysis. The odds

ratios of standardised predictors26 reveal that the most important continuous variable

explaining voluntary adoption is the size of organisations. This is followed by opinions

about the timeliness of the imposition of SNC, and opinions about the discretionary

constraints imposed by IFRS. Firms with listed parent companies are 5.53 times more

likely to adopt IFRS than firms with unlisted parent companies.

As explained earlier, the residuals of Model A identify seven outlying cases.

Excluding these cases improved the accuracy of the logit model to 85.9% and its

strength of association to 68%. Model B confirms the statistical significance of all

variables identified as significant in Model A. The improved model reveals that

adoption of IFRS is also likely to occur in subsidiaries of multinational companies, in

companies with high levels of environmental uncertainty, and in companies belonging

to industries that are better organised. The odds ratios of the continuous variables

reveals that for this narrowed set of companies, the most important factor explaining

voluntary adoption of IFRS was their view of the timeliness of imposition of the new

Portuguese accounting standards based on IFRS (SNC). Company size is the second

most important factor, followed by belonging to organised sectors, by opinions about

discretionary constraints, and the environmental uncertainty of organisations. By far the

most important dummy variable is the listing status of the parent company, followed by

the status of being a subsidiary of a multinational company.

6. Discussion and Conclusions

By incorporating a theoretical framework grounded in institutional theory to

investigate organisational and environmental factors that condition the voluntary

adoption of IFRS, we are able to evaluate Oliver’s (1991) framework for its capacity to

explain the relationship between institutional pressures for voluntary adoption of IFRS

and the strategic responses of large Portuguese companies. We identify also which

strategic response best describes voluntary adoption.

26 Of the statistically significant predictors, the most important are those that change the odds of the outcome the most. The further the estimated odds ratio is from 1, the more influential the predictor (Tabachnick & Fidell, 2001). However, interpretation of the odds ratio of dummy variables differs from the interpretation of the odds ratio for continuous variables.

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Univariate and multivariate analyses of the cause of institutional pressures reveal

a strong relationship between size and voluntary adoption of IFRS. This is consistent

with H1: that is, large firms are under greater pressure to maintain their social legitimacy

due to their size and visibility (Brammer & Pavelin, 2004; Islam & Deegan, 2010).

Thus, adoption of IFRS is one way to increase social fitness. When selecting accounting

standards, large organisations accommodate institutional pressures (acquiescence) by

adopting an accounting system that signals their financial statements are high quality

and transparent. This is consistent with earlier studies that represented the institutional

factor cause through the size of organisations (Goodstein, 1994; Ingram & Simons,

1995) and found that larger organisations are more likely to acquiesce to institutional

demands.

Empirical results associated with the institutional factor, content, reinforce the

importance of this institutional antecedent in explaining the voluntary adoption of IFRS.

Univariate and multivariate analyses reveal that firms with parent listed companies

(H5.1), and that find adoption of the SNC more timely (H5.2), are more likely to adopt

IFRS voluntarily. This lends additional support to findings of that acquiescence is more

likely when organisations respond to institutional demands that are consistent with their

goals (Ingram & Simon, 1995).

Companies which adopt IFRS voluntarily assign a lower degree of autonomy to

this core of standards in their organisational decisions compared to the national

accounting system. This is contrary to hypothesis H6. The relative importance of

significant explanatory variables (assessed by inspecting odds ratios) reveals this to be a

much less important variable in explaining voluntary adoption of IFRS than size and

opinions about the timeliness of the SNC. So, for large Portuguese companies, the

advantages of adopting IFRS (such as the legitimacy achieved through adoption)

outweigh the loss of decision-making autonomy that ensues. When organisations face

institutional pressures of different strengths, they appear to actively choose the ones

with which they want to comply.

These findings confirm that acquiescence by companies is not a blind response to

institutional demands. Rather, it is a strategic organisational response to promote self-

interests and to actively choose the pressures with which they want to acquiesce. Instead

of regarding organisational conformity to institutional demands to be an outcome of

institutional pressures (DiMaggio & Powell, 1983; Meyer & Rowan, 1977), conformity

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is largely predictable by the inherent nature of institutional pressures (Oliver, 1991) and

by the relative importance of such pressures to each organisation. Thus, the range of

possible strategic responses companies can display is a consequence of the relative

importance they allocate to different institutional elements. This is consistent with there

being a continuous line of responses between acquiescence and manipulation, as

suggested by Oliver (1991).

Univariate analysis revealed that control through diffusion of IFRS is also

important in explaining responsiveness to institutional demands to adopt IFRS.

Companies choosing to adopt IFRS voluntarily have significantly different opinions

about international diffusion of these standards, compared to companies that decide to

persist in using the national accounting system.27

A more restricted sample that eliminates regression outliers shows that

constituents and context are important predictors of choice of strategy. Subsidiaries of

multinational companies are more likely to adopt IFRS voluntarily. This supports the

resource-dependence contention of institutional theory: that is, that dependent

organisations are less likely to resist the demands of organisations on whom they

depend (DiMaggio, 1988; DiMaggio & Powell, 1983). Companies belonging to more

organised industries are more likely to adopt IFRS voluntarily, consistent with results

that acquiescence strategies are associated with a high connectedness with the

environment and strong cooperation among firms from the same industry (Clemens &

Douglas, 2005; Goodstein, 1994). The limited capacity of organisations to predict the

evolution of some environmental factors seems to encourage voluntary adoption of

IFRS. Companies operating in highly uncertain environments are more willing to

comply with institutional demands (and adopt IFRS). Thus, organisations seem to cope

with environmental uncertainty by providing financial statements that comply with high

quality standards in the hope that this will cause constituents to have higher confidence

in their financial statements and in their performance.

The non-significant result of our hypothesis that economic gains would flow from

the adoption of IFRS strengthens the pre-eminence of institutional arguments over

efficiency considerations in explaining the diffusion of organisational practices. This

result suggests that studies of the voluntary adoption of IFRS should incorporate

features of the institutional environments in which companies are embedded if they are

27 The average responses show that voluntary adopters find IFRS more diffused internationally than non-adopters.

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to provide a better understanding of decisions regarding the choice of accounting

standards.

The multiplicity of constituents was not relevant in explaining the voluntary

adoption of IFRS by large Portuguese companies. No significant differences were found

among adopters and non-adopters in terms of the homogeneity of customers,

competitors and markets. However, because shareholders are one of the most important

users of financial statements, they are one of the most important constituents to be

considered when companies choose an accounting standards regime. Although our

construct of multiplicity of constituents (MLTC) did not include responses about the

homogeneity of shareholders, we believe its inclusion would not change the non-

significance of this predictive factor. There is a high concentration of ownership capital

in the majority of Portuguese companies (Lopes & Rodrigues, 2007; Oliveira et al.,

2010), indicating that the level of expected differences in terms of homogeneity of

shareholders is likely to be non-significant between adopters and non-adopters of IFRS.

Therefore, within the institutional environment of large Portuguese companies, this

predictive factor in Oliver’s (1991) model has limited importance in explaining the

voluntary adoption of IFRS.

Generally, voluntary adoption of IFRS by large Portuguese companies reflects an

acquiescence response to institutional demands. However, such a response is not one of

blind conformity to institutional expectations. Rather, it is a purposive response

involving self-interest and evaluation of the many dynamic aspects of the organisational

environment, including weighting the importance of IFRS to the pursuit of

organisational goals.

Prior studies on voluntary adoption of IFRS have not incorporated the demands of

the institutional environment in which organisations are embedded. Thus, an important

strength of the present study is the explicit use of institutional variables to explain the

voluntary adoption of IFRS. Our findings confirm that institutional theory as a powerful

theoretical framework for analysing the diffusion of institutional practices; and that

Oliver’s (1991) framework is useful in analysing how organisational responses to

institutional pressures translate into the diffusion of IFRS. We provide empirical

validation of the conditions under which large companies engage in an acquiescence

response to institutional pressures for the voluntary adoption of IFRS.

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The newness of applying the Oliver’s (1991) framework to study the voluntary

adoption of IFRS implies a degree of subjectivity in the operationalisation of the five

institutional antecedents. Although the constructs produced display acceptable

reliabilities, additional research is needed for refinement.

By promoting further understanding of the relationship between institutional

pressures and decisions regarding which regime of accounting standards to adopt,

stakeholders and policymakers should have a better understanding of the motivators that

induce companies to comply and acquiesce to demands to adopt IFRS. Future research

should investigate how the voluntary adoption of IFRS can benefit from the integration

of institutional and technical-economic perspectives; and assess the importance of each

of these factors in motivating the voluntary adoption of regimes of accounting

standards. Follow up research should analyse how, after the adoption of IFRS/SNC,

organisational field expectations evolve, and how new accounting practices are

institutionalised by companies. Effective conformity or decoupled practices are some of

the responses that adopters can exhibit in the application of IFRS/SNC. Such a study

could refine understanding of the application of Oliver’s model to the field of financial

accounting.

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Concluding Remarks

138

139

This thesis has used an institutional lens to understand the institutionalisation

process of the SNC/IFRS and the behaviour of large Portuguese unlisted companies in a

mandatory context and in a voluntary context. The thesis adopted a two-phase approach

that included qualitative and quantitative research methods. Using the literature review

presented in the first essay as a frame, three essays are then presented. Each essay

reports the findings of a separate empirical study, using data collected from semi-

structured interviews and archival sources, and a questionnaire survey. An overview of

the main findings and contributions of the thesis follows.

The literature review in the first essay revealed that institutional theory is a

powerful lens for analysing the adoption of new organisational structures, such as new

accounting systems. Because the choice of organisational structures reflects the rules,

norms and cultural beliefs prevalent within society, organisations are granted societal

legitimacy if they adopt the “right” accounting system. Accordingly, the diffusion of

IFRS is explained by two main arguments. First, by argument that the adoption of a

particular regime of accounting standards by individual organisations or by nation states

is a means for conforming to institutional pressures. Second, by argument that diffusion

of IFRS is explained by a process of mimesis, in which developing countries adopt

standards of developed countries. IFRS embody a powerful legitimising force that

confers credibility to those who chose to adopt them.

The first essay also provided theoretical arguments about the usefulness of

institutional theory in explaining the role of the accounting profession in diffusing

accounting practices (in particular, IFRS), and in explaining changes in the structural

boundaries of accounting regulation. This essay stressed the importance of analysing

changes in the norms, collective beliefs and institutional logics in evaluating the success

of a local adoption of IFRS. It highlighted also how the combination of institutional

theory with empirical experiences provided by the diffusion of IFRS can be a

productive and creative arena for future research.

The second essay revealed that the institutionalisation process of the SNC was

generally consistent with the model of institutional change proposed by Dillard et al.

(2004). At the political and economic level, the EU has been active in adapting its

legitimation, signification and domination structures to the widely accepted accounting

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criteria of IFRS. Nation states such as Portugal have changed their accounting systems

accordingly, and have developed new accounting systems based on EU-endorsed IFRS.

However, in the case of Portugal, coercive pressures were combined with normative

pressures exerted by an influential agent, the Minister of Finance. Nonetheless, the

Portuguese government included a standard for SMEs in the final content of the SNC to

ensure the SNC adequately satisfied the needs of all companies.

Regarding the organisational field level, OTOC was asked to comment on the new

accounting model at a very advanced stage of the process, close to the preparation of its

final draft version. This made it very difficult for OTOC to propose an accounting

system with significantly different features (e.g. more rules-based or more grounded on

Continental traditions). Accordingly, the President of OTOC capitalised on the situation

by bargaining with the government to elevate the status of the accounting profession to

that of “Order”. Ultimately, the SNC was seen by OTOC as consistent with the

prevailing representational schema of the accounting profession – a schema that values

integration between accounting services and business management. Nonetheless, the

OTOC vision was not shared by small accounting firms. They responded by

implementing the SNC in a limited, partial way. This was because the SNC conflicted

with the needs and goals of accountants for these small firms. Simultaneously, they

were allowed to use an SME standard. This made only small differences in accounting

practices when compared to the POC. The use of the SNC by small accounting firms

was more in the nature of a “ceremonial” one. They preferred to maintain the old

representational schema when framing new situations. The loose coupled accounting

practices that resulted from institutional contradictions (legitimacy undermining

functional efficiency and isomorphism conflicting with divergent interest) offered these

accountants a comforting sense of stability. Despite this, a different behaviour was

exhibited by an accountant in a larger accounting firm that had adopted all the NCRF of

the SNC. This essay revealed that when interests and needs of agents are reconciled by

imposed practices, institutionalisation can occur.

Additionally, the second essay highlighted how accounting standards were easier

to change than the representational schemas of Portuguese accountants. The

enforcement system implemented by the CNC and the quality control mechanisms of

OTOC can encourage companies to engage more actively in changing their accounting

practices. Nonetheless, embrace of an accounting system grounded on an Anglo-Saxon

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institutional logic and on a principles-based approach is only possible if there is a

gradual transformation of signification and legitimation structures in the evolving social

environment.

Suggestions were offered in the second essay to refine the Dillard et al. (2004)

model. In establishing accounting standards involving due process procedures,

argument was presented that inversion of cascading institutional process can occur

before the institutionalisation process reaches the organisational level. Specifically,

positions taken by professional accounting associations and other organised parties

reflect the operating practices that are considered legitimate at the organisational field

level, influencing regulations enacted at the political and economic level. These

suggested refinements enhance the applicability of the Dillard et al. (2004) model to the

accounting arena.

The third essay investigated the institutional factors that, in a mandatory context,

were associated with the preparedness of large Portuguese unlisted companies to adopt

the SNC on 1 January, 2010. Empirical evidence revealed the degree of preparedness

was low. Institutional factors with a positive influence on the degree of preparedness

included the participation of a parent company in decisions regarding conversion

procedures, the presence of exclusively Portuguese shareholders, the extent of reliance

on consulting services, and the conduct of export activities. By complementing a study

of isomorphic influences with the concepts of resistance and institutional logic,

important insights were provided to the behaviour of large Portuguese unlisted

companies in a mandatory context. Though coercive and mimetic institutional factors

influenced levels of preparedness positively, the progress of the preparedness process

was undermined by the resistance of the Portuguese accounting profession and the

embeddedness of code-law practices in the prevailing logic. These results are consistent

with those reported in the second essay. They confirmed that normative embeddedness

is more difficult to overcome than changes in accounting rules.

The third essay provided understanding of the conversion practices of unlisted

companies, and explained the conditions that led them to exhibit varying degrees of

preparedness to adopt the SNC. Results enhance understanding of the type of unlisted

companies that are likely to need encouragement to adopt a new mandatory regime of

accounting standards. This knowledge should be beneficial to standard setters,

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regulators, governments, businesses and professional accounting associations in

countries that are yet to adopt IFRS for unlisted companies. Additionally, it is important

to recognise that research on accounting harmonization has focused on the pre-adoption

phase of IFRS (e.g. advantages, disadvantages and obstacles to convergence) and on the

post-adoption phase of IFRS (e.g. measurement of harmonization and adoption effects).

It has failed to capture the “middle-moment” in which companies establish the

mechanisms for translating new organisational procedures: that is, for interpreting and

reformulating accounting practices. Accordingly, study of the preparedness of

companies to adopt IFRS (or adapted IFRS) in this thesis should extend understanding

of how these standards become institutionalised.

Finally, the fourth essay analysed the relationship between institutional pressures

and the voluntary adoption of IFRS by large Portuguese unlisted companies. This

analysis was conducted using the strategic response framework proposed by Oliver

(1991). The findings corroborate and complement conclusions drawn in other essays.

Results revealed that larger companies, because of their size and visibility, are under

strong pressure to maintain their social legitimacy. Thus, they have greater propensity to

adopt IFRS voluntarily. As with nation states, individual organisations perceive the

adoption of IFRS as a way to achieve social fitness and increase legitimacy. The fourth

essay also revealed that voluntary adoption of IFRS occurs when institutional pressures

are consistent with the goals and interests of organisations. This highlights the

importance of the theorisation process the Portuguese government engaged in, prior to

implementing the SNC, to achieve a high level of consensus within Portuguese society.

Moreover, resource-dependence, connectedness with the organisational field, and

environmental uncertainty were identified as important explanatory factors influencing

the voluntary adoption of IFRS too, consistent with traditional institutional theory-based

arguments. Nonetheless, contrary to initial predictions, companies which adopted IFRS

voluntarily assigned to these adopted standards a lower degree of autonomy in their

organisational decisions than they did with standards in the national system. This should

discourage voluntary adoption. However, analysis of the relative importance of the

significant explanatory variables influencing voluntary adoption was revealing. This

analysis showed that the loss of autonomy resulting from the adoption of IFRS is much

less important for these companies than the legitimacy IFRS can offer or the

consistency of these standards with their interests. Consequently, voluntary adoption of

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IFRS is a strategic organisational response: companies evaluate the pressures they want

to acquiesce with and they promote their self-interests when responding to institutional

pressures.

The results of the fourth essay also complement the findings of the second essay.

As with a mandatory context, adoption of new accounting standards in a voluntary

context is influenced also by the needs and interests of firms. The multiple levels of

accounting regulation in Portugal (IFRS, NCRF, NCRF-PR and Micro-entities) raise

questions about the future strategic choices of Portuguese companies when faced with

deciding on a higher level of accounting regulation than that to which they are obliged.

Nonetheless, findings of second essay regarding loose coupling of the SNC suggest

further investigation should be made of any ceremonial use of IFRS or higher levels of

accounting regulation by these companies. Such strategic choice can secure external

legitimacy to these companies but, at the end, the regime of accounting standards

adopted can remain detached from accounting practices because its interpretation and

enactment in day-to-day activities is still grounded on a code-law logic. Additionally,

because the SNC resulted from the adaptation of IFRS to the Portuguese culture, the

effectiveness of such endeavour can be assess through the investigation of the levels of

compliance of companies adopting IFRS and companies adopting the SNC.

Overall, the broad contribution of this thesis is its extension of understanding of

the institutional processes affecting the adoption of a new regime of accounting

practices. By exploring the main institutional arguments that are relevant in influencing

the diffusion of IFRS globally, the thesis extends the analysis of the rationales

underlying the adoption of these standards. In doing so, to a great extent, it overcomes

functionalist perspectives that dominate the literature on accounting harmonisation.

This thesis also deepens understanding of how a new accounting system was

institutionalised within Portuguese society, in a mandatory context. In terms of Scott’s

(1995) concept of institutions, in Portugal, IFRS have achieved the regulative element

entirely, and have gradually become a normative system within the accounting

profession. However, IFRS are far from becoming a collection of shared conceptions or

the prevailing frame through which accounting meaning is framed. This is consistent

with the view that the cultural-cognitive element is the deepest underpinning of

institutions.

144

These findings are complemented by the view that, when companies are not

required to use IFRS, they use this rationalised myth strategically to respond to

pressures of institutional constituents and to promote their self-interest in the choice of

the rewards conferred by organisational conformity.

However, research in this matter is far from complete or exhausted. This thesis

has revealed the strengths of analysing the accounting harmonisation process through an

institutional lens. The post-implementation phase occurring in several countries that

have adopted IFRS (or adapted IFRS) is, and will be, an appealing important area for

future research. Such research should investigate the institutional dynamics across the

various levels of societal systems, the evolving trade-off between transnational

regulatory structures and traditional power structures, and the way new accounting

practices emerge, are diffused, and subsequently decline. Combining institutional theory

with processes of accounting harmonisation provides institutional theory with an

evolving field for investigation. The adoption of an institutionalist perspective by

accounting researchers in the future has strong potential to extend understanding of why

and how IFRS or similar accounting regimes diffuse.

This thesis should help to stimulate further investigations into the processes of

accounting change. Such investigations have the potential to deepen understanding of

how accounting changes are institutionalised in national and international settings in a

modern fast-paced world. It should thereby develop more mature and informed

understandings of the likely behaviour of accountants and accounting-related

institutions in response to future change proposals.

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Appendices

146

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Appendix A: Script of the Interview with the President of the CNC and two

Members of the Executive Commission

1. How did the SNC arise? How has the new accounting system evolved since then?

2. What were the major reasons for the CNC developing an accounting system based

on IFRS in Portugal?

3. What was the importance of the international accounting harmonisation process in

the decision of the CNC to develop the SNC?

4. What was the importance of the harmonisation of financial statements between

listed and unlisted companies in the decision to adopt the SNC?

5. What were the most controversial or consensual questions during the process of

developing the SNC?

6. What are the greatest problems or difficulties that the CNC anticipates unlisted

companies will have in adopting the SNC?

7. Did the Portuguese government give directions to the CNC to impose a regime of

accounting standards based on IFRS on unlisted companies? If so, what were the

main arguments of the government?

8. What is the opinion of the majority of the organisations that belong to the General

Council of the CNC about the new SNC?

9. Have professional organisations exerted some kind of pressure on the CNC to

impose an accounting system based on IFRS on unlisted companies?

10. What was the position of OROC towards the SNC?

11. To what extent did the position of OROC reveal the opinion of international

accounting firms (Big-four) about the SNC?

12. To what extent was the decision to develop the SNC influenced by a similar

decision of a regulatory body of other country?

148

149

Appendix B: Script of the Interview with the President of the Executive

Commission of the CNC and with other Member of the Executive

Commission

1. How did the development of the SNC evolve since 2003? How many meetings did

the CNC have with the Portuguese government? What was decided in each

meeting?

2. In December 2005, the Minister of Finance issued a press release in which he

announced the intention of creating a work group to change the tax code, so that

IFRS could be used by all companies. In early 2006, this work group was created.

Did the CNC have any guidance from the government during the development of

the SNC? Was this guidance detailed or general?

3. The new accounting system is very different from the old accounting system. At the

beginning, what were the opinions of the members of the Executive Commission

about the features of the new accounting system?

4. The initial version of the SNC did not include a SME standard. Why was this

standard included later?

5. What were the most difficult issues during the process of adapting IFRS to the

Portuguese context?

6. During the preparation of the NCRF, what were the criteria used in the elimination

of certain paragraphs of IFRS?

7. Did the professions of the members of the Executive Commission have some

influence on the establishment of the SNC? And on the elaboration of the NCRF?

8. Were the members of the Executive Commission aware of what was ocurring in

other countries of the European Union?

9. In your opinion, what are the main obstacles or problems likely to arise in the

adoption of the SNC by Portuguese not-listed companies?

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Appendix C: Script of the Interview with the Representative of the CNC on the

ARC of the European Commission

1. Has the European Commission provided guidance and indicated a preference on

how Member-states should regulate financial statements of unlisted companies,

after Regulation 1606/2002?

2. What are the reasons for the different choices taken by Member-states after the

Regulation?

3. What are the main reasons for the choice taken by the CNC?

4. Was the option taken by the CNC influenced by the choice taken any particular

country? Which was/were most influential?

5. Did power structures regarding accounting regulation change because of the

accounting harmonisation process?

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Appendix D: Script of the Interview with the President of OTOC

1. How would you describe the role of OTOC in the process of developing the SNC?

2. What was the initial opinion of OTOC about the new accounting model? Has this

position evolved over time?

3. Did OTOC feel pressure to stand for, or against, the SNC by some groups (auditors,

other professional associations, financial analysts, universities, or academics)?

4. To what extent were the suggestions made by OTOC, during the due process of the

SNC, accepted by the CNC and incorporated in the final version of the accounting

system?

5. How would you describe the capacity of OTOC to influence accounting standard

setting by the CNC?

6. Was this influence exerted through participation in the Executive Committee of the

CNC, through due processes procedures, or through contacts with the government?

7. During the second half of 2009, OTOC has intensified training on the SNC. What

were the main objectives of the training?

8. How did OTOC choose the content of the training? And the number of courses on

the SNC required in each period?

9. What has been the feedback from training sections? What were the main difficulties

for accountants?

10. To what extent did accountants, especially those belonging to small accounting

firms, internalise the principles and concepts of the SNC?

11. What changes occurred in the functioning of OTOC as a consequence of the

adoption of the SNC (regulations, admission tests)?

12. OTOC evaluates the work quality of accountants through quality control. Was there

a change in the rules or practices relating to quality control of OTOC (e.g. new

procedures for assessing professional or technical judgments, for assessing

measurement of fair value)?

13. Can you describe the profile of a good accountant for OTOC? Did this assessment

change after the SNC?

154

14. What were the key agents influencing actions of OTOC during this process of

accounting change (government, members, professional associations of other

countries)?

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Appendix E: Script of the Interviews with Accountants

1. How did your company deal with the conversion to the SNC?

2. Given the type of companies you work with, which level of accounting regulation

will you use? The 28 NCRF or the NCRF-PE?

3. Did you make such a decision alone or in consultation with your clients?

4. Are some of your clients audited? How would you describe your relationship with

the auditors during the conversion process (cooperation or conflict)?

5. When applying the SNC in companies that are not audited, did you feel increased

difficulties by not having this support?

6. To what extent did you talk with your peers for clarifications during the conversion

process?

7. What do you consider was most important in your process of preparedness for the

SNC? Exchanging ideas with peers or the training sections you attended?

8. What was the main driver of your preparedness (needing credits of OTOC, not to

fail as accountant, pressure to meet tax deadlines, pressure to maintain a good

image towards your clients, pressure exerted by the management of companies)?

9. Before the adoption of the SNC, did you assess the changes that would occur and

their impact on your clients’ financial statements?

10. What are the main difficulties that you experienced when adopting the NCRF-PE?

11. Did the managers of the companies follow the conversion process?

12. Was the preparedness obtained through training sections useful to adopt the SNC?

13. In your opinion, to what extent does the NCRF-PE allow more or less decision-

making autonomy (freedom of choice) compared to the old accounting system?

14. If the adoption of the SNC was optional, would you continue to use the old

accounting system or would you adopt the SNC? What are the reasons for such

position?

15. To what extent was the application of NCRF-PE very different from the old

accounting system?

156

16. What is your opinion of the quality of financial information that is made in

accordance with the NCRF-PE compared to old accounting system?

17. Have you noticed any reaction from banks or other users of financial information

regarding adoption of the SNC?

18. How do you expect to operate enforcement systems of the SNC?

19. Regarding your business, to what extent has the adoption of the SNC changed the

way your business operates?

20. To what extent has the SNC provided new business opportunities for the firm?

21. To what extent has the SNC enhanced your prestige or status with your clients?

22. How would you characterise your activity in terms of uncertainty? That is, during

your normal business, how do you evaluate the ability of your firm to predict the

growth in number of customers, the tax laws or emergence of new competitors?

157

Appendix F: Universe of the 500 Largest Portuguese Unlisted Companies

(published in the management magazine, Exame, in 2008)

Position Name 1 PETRÓLEOS DE PORTUGAL - PETROGAL, S.A. 2 MODELO CONTINENTE - HIPERMERCADOS, S.A. 3 EDP DISTRIBUIÇÃO - ENERGIA, S.A. 4 BP PORTUGAL - COMERCIO DE COMBUSTIVEIS E LUBRIFICANTES, S.A. 5 TRANSPORTES AEREOS PORTUGUESES, S.A. 6 PT COMUNICAÇÕES, S.A. 7 REPSOL PORTUGUESA, S.A. 8 PINGO DOCE - DISTRIBUIÇÃO ALIMENTAR, S.A. 9 AUTOEUROPA - AUTOMÓVEIS, LDA 10 TMN - TELECOMUNICAÇÕES MÓVEIS NACIONAIS, S.A. 11 QIMONDA PORTUGAL, S.A. 12 VODAFONE PORTUGAL - COMUNICAÇÕES PESSOAIS, S.A. 13 EDP - ENERGIAS DE PORTUGAL, S.A. 14 GALP GÁS NATURAL, S.A. 15 COMPANHIA PORTUGUESA DE HIPERMERCADOS, S.A. 16 SAIPEM (PORTUGAL) - COMÉRCIO MARÍTIMO, SOCIEDADE UNIPESSOAL, S.A. 17 FEIRA NOVA - HIPERMERCADOS, S.A. 18 REPSOL POLÍMEROS, LDA 19 DIA PORTUGAL - SUPERMERCADOS, SOCIEDADE UNIPESSOAL, LDA 20 CEPSA - PORTUGUESA PETRÓLEOS, S.A. 21 LACTOGAL - PRODUTOS ALIMENTARES, S.A. 22 MOTA-ENGIL, ENGENHARIA E CONSTRUÇÃO, S.A. 23 ALLIANCE HEALTHCARE, S.A. 24 CTT - CORREIOS DE PORTUGAL, S.A. 25 RECHEIO - CASH & CARRY, S.A. 26 RENAULT PORTUGAL, S.A. 27 SIVA - SOCIEDADE DE IMPORTAÇÃO DE VEICULOS AUTOMOVEIS, S.A. 28 SOPORCEL - SOCIEDADE PORTUGUESA DE PAPEL, S.A. 29 CONTINENTE HIPERMERCADOS, S.A. 30 ZON TV CABO PORTUGAL, S.A. 31 DELPHI AUTOMOTIVE SYSTEMS - PORTUGAL, S.A. 32 UNILEVER JERÓNIMO MARTINS, LDA 33 TRANSGÁS, S.A. 34 BRISA - AUTO ESTRADAS DE PORTUGAL, S.A. 35 G.M.A.C.- COMERCIO E ALUGUER DE VEICULOS, LDA 36 OCP-PORTUGAL - PRODUTOS FARMACEUTICOS, S.A. 37 WORTEN - EQUIPAMENTOS PARA O LAR, S.A. 38 PORTUCEL - EMPRESA PRODUTORA DE PASTA E PAPEL, S.A. 39 GALPGESTE - GESTÃO DE AREAS DE SERVIÇO, S.A. 40 MAKRO CASH & CARRY PORTUGAL, S.A. 41 PEUGEOT CITROEN AUTOMÓVEIS PORTUGAL, S.A. 42 MERCEDES-BENZ PORTUGAL, S.A. 43 REAGRO - IMPORTAÇÃO E EXPORTAÇÃO, S.A. 44 CONTINENTAL MABOR - INDÚSTRIA DE PNEUS, S.A. 45 NESTLE - PORTUGAL, S.A. 46 SOMINCOR - SOCIEDADE MINEIRA DE NEVES-CORVO, S.A. 47 TEIXEIRA DUARTE - ENGENHARIA E CONSTRUÇÕES, S.A. 48 ELCA COSMÉTICOS, LDA 49 TOYOTA CAETANO PORTUGAL, S.A. 50 TABAQUEIRA - EMPRESA INDUSTRIAL DE TABACOS, S.A. 51 SN SEIXAL - SIDERURGIA NACIONAL, S.A. 52 SIEMENS, S.A. 53 SOMAGUE - ENGENHARIA, S.A. 54 PT PRIME - SOLUÇÕES EMPRESARIAIS DE TELECOMUNICAÇÕES E SISTEMAS, S.A. 55 BLAUPUNKT AUTO-RADIO PORTUGAL, LDA 56 CIMPOR - INDÚSTRIA DE CIMENTOS, S.A. 57 UNITED EUROPEAN CAR CARRIERS, UNIPESSOAL, LDA 58 PEUGEOT PORTUGAL AUTOMÓVEIS, S.A. 59 MEGASA, COMERCIO DE PRODUTOS SIDERURGICOS, LDA 60 CODIFAR - COOPERATIVA DISTRIBUIDORA FARMACEUTICA, C.R.L. 61 EL CORTE INGLES - GRANDES ARMAZENS, S.A.

158

62 SCC - SOCIEDADE CENTRAL DE CERVEJAS E BEBIDAS, S.A. 63 SONAECOM - SERVIÇOS DE COMUNICAÇÕES, S.A. 64 SOCIEDADE DE CONSTRUÇÕES SOARES DA COSTA, S.A. 65 REN TRADING, S.A. 66 TURBOGÁS - PRODUTORA ENERGETICA, S.A. 67 MIDSID - SOCIEDADE PORTUGUESA DE DISTRIBUIÇÃO, S.A. 68 HEWLETT-PACKARD PORTUGAL, LDA 69 AUTOMÓVEIS CITROEN, S.A. 70 BP GEST24 - EXPLORAÇÃO DE POSTOS ABASTECIMENTO LOJAS DE CONVENIÊNCIA, SOC.

UNIPESSOAL, LDA 71 CPCDI - COMPANHIA PORTUGUESA DE COMPUTADORES DISTRIBUIÇÃO DE PRODUTOS

INFORMATICOS, S.A. 72 GESPOST - GESTÃO E ADMINISTRAÇÃO DE POSTOS DE ABASTECIMENTO, UNIPESSOAL, LDA 73 CAETANO - AUTO, S.A. 74 ANA - AEROPORTOS DE PORTUGAL, S.A. 75 COMPANHIA IBM PORTUGUESA, S.A. 76 CP - CAMINHOS DE FERRO PORTUGUESES, E.P. 77 MSF - MONIZ DA MAIA, SERRA & FORTUNATO - EMPREITEIROS, S.A. 78 TOTAL PORTUGAL - PETRÓLEOS, S.A. 79 FNAC PORTUGAL - ACTIVIDADES CULTURAIS E DISTRIBUIÇÃO DE LIVROS, DISCOS

MULTIMÉDIA E PRODUTOS TÉCNICOS, LDA 80 SONAE INDÚSTRIA - PRODUÇÃO E COMERCIALIZAÇÃO DE DERIVADOS DE MADEIRA, S.A. 81 SAMSUNG - ELECTRÓNICA PORTUGUESA, S.A. 82 C.A.C.I.A. - COMPANHIA AVEIRENSE DE COMPONENTES PARA A INDÚSTRIA AUTOMÓVEL, S.A. 83 GCT-ON LINE - DISTRIBUIÇÃO ALIMENTAR DIRECTA, S.A. 84 ZARA PORTUGAL - CONFECÇÕES, UNIPESSOAL, LDA 85 SOUZA CRUZ OVERSEAS, S.A. 86 UNIÃO DOS FARMACEUTICOS DE PORTUGAL, C.R.L. 87 LUSOSIDER - AÇOS PLANOS, S.A. 88 BOSCH TERMOTECNOLOGIA S.A. 89 COOPROFAR - COOPERATIVA DOS PROPRIETÁRIOS DE FARMÁCIA, C.R.L. 90 ESSO PORTUGUESA, LDA 91 FAURECIA - ASSENTOS DE AUTOMÓVEL, LDA 92 VIAGENS ABREU, S.A. 93 ZAGOPE - CONSTRUÇÕES E ENGENHARIA, S.A. 94 SOVENA PORTUGAL - CONSUMER GOODS, S.A. 95 COFANOR - COOPERATIVA DOS FARMACÊUTICOS DO NORTE, C.R.L. 96 EDIFER - CONSTRUÇÕES PIRES COELHO & FERNANDES, S.A. 97 VASP - DISTRIBUIDORA DE PUBLICAÇÕES, LDA 98 SOVENA OILSEEDS PORTUGAL, S.A. 99 AMORIM & IRMÃOS, S.A. 100 MITSUBISHI FUSO TRUCK EUROPE - SOCIEDADE EUROPEIA DE AUTOMÓVEIS, S.A. 101 FIAT DISTRIBUIDORA PORTUGAL, S.A. 102 BAVIERA - COMÉRCIO DE AUTOMÓVEIS, S.A. 103 RADIO POPULAR - ELECTRODOMESTICOS, S.A. 104 LENA ENGENHARIA E CONSTRUÇÕES, S.A. 105 PERDIX INTERNATIONAL FOODS - COMÉRCIO INTERNACIONAL, SOCIEDADE UNIPESSOAL, LDA 106 MEADOWLARK - TELECOMUNICAÇÕES E SERVIÇOS, LDA 107 DANONE PORTUGAL, S.A. 108 AUTO-SUECO, LDA 109 TEJO ENERGIA - PRODUÇÃO E DISTRIBUIÇÃO DE ENERGIA ELÉCTRICA, S.A. 110 MONTEADRIANO - ENGENHARIA E CONSTRUÇÃO, S.A. 111 ESTORIL-SOL III - TURISMO, ANIMAÇÃO E JOGO, S.A. 112 PETRIN - PETRÓLEOS E INVESTIMENTOS, S.A. 113 S.P.L.A. - SOCIEDADE PORTUGUESA DE LEILÕES DE AUTOMOVEIS, S.A. 114 REFRIGE - SOCIEDADE INDUSTRIAL DE REFRIGERANTES, S.A. 115 MARTIFER - CONSTRUÇÕES METALOMECÂNICAS, S.A. 116 CENIBRA-INTERNACIONAL - SERVIÇOS E COMÉRCIO (SOCIEDADE UNIPESSOAL), LDA 117 D.L.I. - DISTRIBUIÇÃO E LOGISTICA PARA A INFORMÁTICA, S.A. 118 SPDAD - SOCIEDADE PORTUGUESA DE PRODUÇÃO E DISTRIBUIÇÃO DE ARTIGOS DE DESPORTO,

LDA 119 CELULOSE DA BEIRA INDUSTRIAL (CELBI), S.A. 120 MERCK SHARP & DOHME, LDA 121 LUSO FINSA - INDUSTRIA E COMERCIO DE MADEIRAS, S.A. 122 CUF - QUÍMICOS INDUSTRIAIS, S.A. 123 PROPEL - PRODUTOS DE PETRÓLEO, LDA 124 MANUEL RUI AZINHAIS NABEIRO, LDA 125 MEGAMEIOS - PUBLICIDADE E MEIOS, A.C.E.

159

126 CABELTE - CABOS ELÉCTRICOS E TELEFÓNICOS, S.A. 127 COLEPCCL PORTUGAL - EMBALAGENS E ENCHIMENTOS, S.A. 128 OFFCEP-OFFICE CENTRE PORTUGAL - EQUIPAMENTO DE ESCRITÓRIO, LDA 129 GENERAL CABLE CELCAT - ENERGIA E TELECOMUNICAÇÕES, S.A. 130 CONTACTO - SOCIEDADE DE CONSTRUÇÕES, S.A. 131 PORTUCEL VIANA - EMPRESA PRODUTORA DE PAPÉIS INDÚSTRIAIS, S.A. 132 OPWAY - ENGENHARIA, S.A. 133 FARBEIRA COFARBEL FARCENTRO - COOPERATIVA FARMACEUTICA, C.R.L. 134 BA VIDRO, S.A. 135 GROHE PORTUGAL - COMPONENTES SANITARIOS, LDA 136 SATA INTERNACIONAL - SERVIÇOS E TRANSPORTES ÁEREOS, S.A. 137 COMPANHIA INDUSTRIAL DE RESINAS SINTÉTICAS, CIRES, S.A. 138 CIBAL - DISTRIBUIÇÃO DE BEBIDAS E ALIMENTAÇÃO, S.A. 139 SEAT PORTUGAL, UNIPESSOAL, LDA 140 CME - CONSTRUÇÃO E MANUTENÇÃO ELECTROMECÂNICA, S.A. 141 BOTELHO & RODRIGUES, LDA 142 INSCO - INSULAR DE HIPERMERCADOS, S.A. 143 CASAIS - ENGENHARIA E CONSTRUÇÃO, S.A. 144 SLEM - SOCIEDADE LUSO ESPANHOLA DE METAIS, LDA 145 GLAXOSMITHKLINE - PRODUTOS FARMACEUTICOS, LDA 146 HOSPITAL AMADORA/SINTRA - SOCIEDADE GESTORA, S.A. 147 FERPINTA - INDÚSTRIAS DE TUBOS DE AÇO DE FERNANDO PINHO TEIXEIRA, S.A. 148 TRANSPORTES FREITAS, LDA 149 REPSOL GÁS PORTUGAL, S.A. 150 ROCHE FARMACÊUTICA QUÍMICA, LDA 151 ERICSSON - TELECOMUNICAÇÕES, LDA 152 T.V.I. - TELEVISÃO INDEPENDENTE, S.A. 153 ASTRAZENECA - PRODUTOS FARMACÊUTICOS, LDA 154 EEM - EMPRESA DE ELECTRICIDADE DA MADEIRA, S.A. 155 SPORT ZONE - COMERCIO DE ARTIGOS DE DESPORTO, S.A. 156 LISBOAGAS GDL - SOCIEDADE DISTRIBUIDORA DE GAS NATURAL DE LISBOA, S.A. 157 ILIDIO MOTA - PETROLEOS E DERIVADOS, LDA 158 CUF - ADUBOS DE PORTUGAL, S.A. 159 SOGRAPE VINHOS, S.A. 160 GALP MADEIRA - DISTRIBUIÇÃO E COMERCIALIZAÇÃO DE COMBUSTÍVEIS E LUBRIFICANTES,

S.A. 161 SANOFI-AVENTIS - PRODUTOS FARMACEUTICOS, S.A. 162 LUSOSCUT - AUTO ESTRADAS DAS BEIRAS LITORAL E ALTA, S.A. 163 EPAL - EMPRESA PORTUGUESA DAS ÁGUAS LIVRES, S.A. 164 MANUEL NUNES & FERNANDES II, LDA 165 ELECTRICIDADE DOS AÇORES, S.A. 166 OGMA - INDÚSTRIA AERONÁUTICA DE PORTUGAL, S.A. 167 ACEMBEX - COMERCIO E SERVIÇOS, LDA 168 MITSUBISHI MOTORS DE PORTUGAL, S.A. 169 SAFEBAG - INDÚSTRIA COMPONENTES DE SEGURANÇA AUTOMÓVEL, S.A. 170 TATE & LYLE AÇUCARES PORTUGAL, S.A. 171 SIC - SOCIEDADE INDEPENDENTE DE COMUNICAÇÃO, S.A. 172 BAYER PORTUGAL, S.A. 173 AUTO-INDUSTRIAL, S.A. 174 BIAL - PORTELA & CA., S.A. 175 ABBOTT LABORATORIOS, LDA 176 JORGE SA, S.A. 177 AUTO-SUECO (COIMBRA), LDA 178 RAÇÕES VALOURO, S.A. 179 LONGA VIDA - INDÚSTRIAS LÁCTEAS, S.A. 180 IBEROL - SOCIEDADE IBÉRICA DE BIOCOMBUSTÍVEIS E OLEAGINOSAS, S.A. 181 ARBORA Y AUSONIA, S.L. 182 HONDA PORTUGAL, S.A. 183 JMR - PRESTAÇÃO DE SERVIÇOS PARA A DISTRIBUIÇÃO, S.A. 184 LFP - LOJAS FRANCAS DE PORTUGAL, S.A. 185 TETRA PAK PORTUGAL - SISTEMAS DE EMBALAGEM E TRATAMENTO PARA ALIMENTOS, S.A. 186 STAR - VIAGENS E TURISMO, S.A. 187 CONDURIL - CONSTRUTORA DURIENSE, S.A. 188 LISNAVE - ESTALEIROS NAVAIS, S.A. 189 CONSTRUCTORA SAN JOSE, S.A. (PONTEVEDRA) REPRESENTAÇÃO EM PORTUGAL 190 INSTITUTO PORTUGUÊS DE ONCOLOGIA DO PORTO FRANCISCO GENTIL, E.P.E. 191 SANER - SOCIEDADE ALIMENTAR DO NORTE, S.A. 192 PATINTER - PORTUGUESA DE AUTOMOVEIS TRANSPORTADORES, S.A.

160

193 TECNOVIA - SOCIEDADE DE EMPREITADAS, S.A. 194 FLORENCIO AUGUSTO CHAGAS, S.A. 195 PROSEGUR - COMPANHIA DE SEGURANÇA, LDA 196 TRANSINSULAR - TRANSPORTES MARITIMOS INSULARES, S.A. 197 CIN - CORPORAÇÃO INDUSTRIAL DO NORTE, S.A. 198 ALBERTO MARTINS DE MESQUITA & FILHOS, S.A. 199 FROMAGERIES BEL PORTUGAL, S.A. 200 SOLVERDE - SOCIEDADE DE INVESTIMENTOS TURISTICOS DA COSTA VERDE, S.A. 201 MANITOWOC CRANE GROUP PORTUGAL, LDA 202 VIATEL - TECNOLOGIA DE COMUNICAÇÕES, S.A. 203 DATABOX - INFORMÁTICA, S.A. 204 YAZAKI SALTANO DE OVAR - PRODUTOS ELÉCTRICOS, LDA 205 LEASE PLAN PORTUGAL - COMERCIO E ALUGUER DE AUTOMOVEIS E EQUIPAMENTOS,

UNIPESSOAL, LDA 206 ALVES BANDEIRA & CA., LDA 207 WEBASTO PORTUGAL - SISTEMAS PARA AUTOMÓVEIS, LDA 208 EXIDE TECHNOLOGIES, LDA 209 ENERPULP - COGERAÇÃO ENERGETICA DE PASTA, S.A. 210 SCUTVIAS - AUTOESTRADAS DA BEIRA INTERIOR, S.A. 211 PRISMA - COMBUSTÍVEIS E LUBRIFICANTES, S.A. 212 DOW PORTUGAL - PRODUTOS QUIMICOS, SOCIEDADE UNIPESSOAL, LDA 213 RECKITT BENCKISER (PORTUGAL), S.A. 214 MILANGE - COMÉRCIO INTERNACIONAL E SERVIÇOS, LDA 215 FDO - CONSTRUÇÕES, S.A. 216 J.SOARES CORREIA - ARMAZÉNS DE FERRO, S.A. 217 ESTAMO - PARTICIPAÇÕES IMOBILIÁRIAS, S.A. 218 SUMOLIS - GESTÃO DE MARCAS, S.A. 219 SAS - AUTOSYSTEMTECHNIK DE PORTUGAL, UNIPESSOAL, LDA 220 C.M.P. - CIMENTOS MACEIRA E PATAIAS, S.A. 221 INSTITUTO PORTUGUES DE ONCOLOGIA DE LISBOA FRANCISCO GENTIL, E.P.E. 222 VICTOR GUEDES - INDUSTRIA E COMERCIO, S.A. 223 PHILIPS PORTUGUESA, S.A. 224 SPORT TV PORTUGAL, S.A. 225 SECURITAS - SERVIÇOS E TECNOLOGIA DE SEGURANÇA, S.A. 226 RIBERALVES - COMÉRCIO E INDÚSTRIA DE PRODUTOS ALIMENTARES, S.A. 227 RENOVA - FABRICA DE PAPEL DO ALMONDA, S.A. 228 GERTAL - COMPANHIA GERAL DE RESTAURANTES E ALIMENTAÇÃO, S.A. 229 GLOBAL NOTÍCIAS - PUBLICAÇÕES, S.A. 230 DOMINGOS DA SILVA TEIXEIRA, S.A. 231 PORTGÁS - SOCIEDADE DE PRODUÇÃO E DISTRIBUIÇÃO DE GÁS, S.A. 232 MATUDIS - COMÉRCIO DE PRODUTOS ALIMENTARES, LDA 233 SANTOS BAROSA - VIDROS, S.A. 234 BENTELER - INDUSTRIA DE COMPONENTES PARA AUTOMOVEIS, LDA 235 PORTUGÁLIA - COMPANHIA PORTUGUÊSA DE TRANSPORTES AÉREOS, S.A. 236 BUNGE IBERICA PORTUGAL, S.A. 237 SIBS - SOCIEDADE INTERBANCARIA DE SERVIÇOS, S.A. 238 CONSTANTINO FERNANDES OLIVEIRA & FILHOS, S.A. 239 ESTALEIROS NAVAIS DE VIANA DO CASTELO, S.A. 240 SANTOGAL V - COMERCIO E REPARAÇÃO DE AUTOMOVEIS, S.A. 241 SERVIER PORTUGAL - ESPECIALIDADES FARMACEUTICAS, LDA 242 HUF PORTUGUESA - FÁBRICA DE COMPONENTES PARA O AUTOMÓVEL, LDA 243 FAPRICELA - INDÚSTRIA DE TREFILARIA, S.A. 244 EUROPCAR INTERNACIONAL - ALUGUER DE AUTOMOVEIS, S.A. 245 FISIPE - FIBRAS SINTÉTICAS DE PORTUGAL, S.A. 246 GALP ENERGIA, S.A. 247 GASPE - COMBUSTIVEIS, LDA 248 BSHP - ELECTRODOMESTICOS, SOCIEDADE UNIPESSOAL, LDA 249 REN - GASODUTOS, S.A. 250 IBERUSA - HOTELARIA E RESTAURAÇÃO, S.A. 251 J.P. SÁ COUTO, S.A. 252 LIDOSOL II - DISTRIBUIÇÃO DE PRODUTOS ALIMENTARES, S.A. 253 POWERMEDIA - SERVIÇOS PUBLICITÁRIOS, S.A. 254 CEREALIS - MOAGENS, S.A. 255 PEUGEOT PORTUGAL AUTOMÓVEIS DISTRIBUIÇÃO (PPAD), S.A. 256 NOVADELTA - COMÉRCIO E INDÚSTRIA DE CAFÉS, S.A. 257 LEGRAND ELECTRICA, S.A. 258 AVELINO FARINHA & AGRELA, S.A. 259 SOLIDAL - CONDUTORES ELÉCTRICOS, S.A.

161

260 DAI - SOCIEDADE DE DESENVOLVIMENTO AGRO-INDUSTRIAL, S.A. 261 COMAR - GESTÃO DE POSTOS DE COMBUSTÍVEIS, LDA 262 ANTÓNIO TEIXEIRA LOPES & FILHOS, LDA 263 CENTRO HOSPITALAR DE TRÁS-OS-MONTES E ALTO DOURO, E.P.E. 264 CARNES DO CONTINENTE - INDUSTRIA E DISTRIBUIÇÃO DE CARNES, S.A. 265 MERCAUTO - METALOMECANICA DE REPARAÇÃO E CONSTRUÇÃO DE AUTOMÓVEIS, LDA 266 COFICAB PORTUGAL - COMPANHIA DE FIOS E CABOS, LDA 267 ENERTICA - DISTRIBUIÇÃO DE COMBUSTIVEIS, S.A. 268 YAZAKI SALTANO DE PORTUGAL - COMPONENTES ELÉCTRICOS PARA AUTOMÓVEIS, LDA 269 ALVES RIBEIRO, S.A. 270 ACCENTURE - CONSULTORES DE GESTÃO, S.A. 271 SOGENAVE - SOCIEDADE GERAL DE ABASTECIMENTOS À NAVEGAÇÃO E INDÚSTRIA

HOTELEIRA, S.A. 272 RAR - REFINARIAS DE AÇUCAR REUNIDAS, S.A. 273 CTT EXPRESSO - SERVIÇOS POSTAIS E LOGÍSTICA, S.A. 274 PREH PORTUGAL, LDA 275 CONSTRUTORA ABRANTINA, S.A. 276 SCHNEIDER ELECTRIC PORTUGAL - APARELHAGEM ELECTRICA, LDA 277 SICASAL - INDÚSTRIA E COMÉRCIO DE CARNES, S.A. 278 WAYFIELD - TRADING INTERNACIONAL, S.A. 279 PETROIBÉRICA - SOCIEDADE DE PETRÓLEOS IBERO LATINOS, S.A. 280 ESTEVÃO NEVES - HIPERMERCADO DA MADEIRA, S.A. 281 PROVIMI IBÉRIA - CONCENTRADOS PARA ALIMENTAÇÃO DE ANIMAIS, S.A. 282 SONACERGY SERVIÇOS E CONSTRUÇÕES PETROLÍFERAS, LDA (ZONA FRANCA DA MADEIRA) 283 MODALFA - COMERCIO E SERVIÇOS, S.A. 284 S.T.E.T. - SOCIEDADE TÉCNICA DE EQUIPAMENTOS E TRACTORES, S.A. 285 PRIMEDRINKS - COMERCIALIZAÇÃO DE BEBIDAS ALCOÓLICAS E PRODUTOS ALIMENTARES,

S.A. 286 ROCA, S.A. 287 PORTLINE - TRANSPORTES MARITIMOS INTERNACIONAIS, S.A. 288 SELECT - RECURSOS HUMANOS, EMPRESA DE TRABALHO TEMPORÁRIO, S.A. 289 EMEF - EMPRESA DE MANUTENÇÃO DE EQUIPAMENTO FERROVIARIO, S.A. 290 BETECNA - BETÃO PRONTO, S.A. 291 MAHLE - COMPONENTES DE MOTORES, S.A. 292 NASAMOTOR - VEICULOS E PEÇAS, S.A. 293 GONVARRI - PRODUTOS SIDERURGICOS, S.A. 294 SYMINGTON - FAMILY ESTATES, VINHOS, LDA 295 AGIP PORTUGAL - COMBUSTIVEIS, S.A. 296 COMPANHIA CARRIS DE FERRO DE LISBOA, S.A. 297 PT - SISTEMAS DE INFORMAÇÃO, S.A. 298 GEFCO (PORTUGAL) - TRANSITÁRIOS, LDA 299 COINDU - COMPONENTES PARA A INDÚSTRIA AUTOMÓVEL, S.A. 300 SAINT GOBAIN GLASS PORTUGAL, VIDRO PLANO, S.A. 301 PT CENTRO CORPORATIVO, S.A. 302 MEDITERRANEAN SHIPPING COMPANY (PORTUGAL) - AGENTES DE NAVEGAÇÃO, S.A. 303 LUSITANIAGAS - COMPANHIA DE GAS DO CENTRO, S.A. 304 UNIFAC - INDÚSTRIA, COMÉRCIO E PARTICIPAÇÕES, S.A. 305 ABEL DA COSTA TAVARES, LDA 306 TRANSPORTES LUÍS SIMÕES, S.A. 307 OTIS ELEVADORES, LDA 308 MORGADIMO PROPERTIES, LIMITED (SUCURSAL EM PORTUGAL) 309 AP - AMONÍACO DE PORTUGAL, S.A. 310 PORTO EDITORA, LDA 311 PT CONTACT - TELEMARKETING E SISTEMAS DE INFORMAÇÃO, S.A. 312 EDIVISA - EMPRESA DE CONSTRUÇÕES, S.A. 313 WYETH LEDERLE PORTUGAL (FARMA), LDA 314 BOSCH SECURITY SYSTEMS - SISTEMAS DE SEGURANÇA, S.A. 315 EFACEC - ENGENHARIA, S.A. 316 PRIO ADVANCED FUELS, S.A. 317 CENTROCAR - CENTRO DE EQUIPAMENTOS MECÂNICOS, S.A. 318 QUIMIBRO - METAIS E MINERAIS, LDA 319 P.P.TV - PUBLICIDADE DE PORTUGAL E TELEVISÃO, S.A. 320 HOSPITAL CUF DESCOBERTAS, S.A. 321 SOCIEDADE PORTUGUESA DO AR LIQUIDO ARLIQUIDO, LDA 322 AMORIM - REVESTIMENTOS, S.A. 323 GEOTUR - VIAGENS E TURISMO, S.A. 324 SCANIA PORTUGAL, S.A. 325 IRMÃOS VILA NOVA, S.A.

162

326 FILINTO MOTA, SUCESSORES, S.A. 327 PULL & BEAR (PORTUGAL) - CONFECÇÕES, S.A. 328 RENAULT TRUCKS PORTUGAL, LDA 329 ACEROL - COMERCIO E INDUSTRIA DE AÇOS INOXIDAVEIS, LDA 330 MARMEDSA AGÊNCIA MARÍTIMA (PORTUGAL), SOCIEDADE UNIPESSOAL, LDA 331 SERVIÇO DE UTILIZAÇÃO COMUM DOS HOSPITAIS 332 TECNASOL-FGE - FUNDAÇÕES E GEOTECNIA, S.A. 333 BERSHKA (PORTUGAL) CONFECÇÕES, SOCIEDADE UNIPESSOAL, LDA 334 TECNEIRA - TECNOLOGIAS ENERGÉTICAS, S.A. 335 UNIDADE LOCAL DE SAUDE MATOSINHOS, E.P.E. 336 CARCLASSE - COMÉRCIO DE AUTOMÓVEIS, S.A. 337 SAPROGAL PORTUGAL - AGRO-PECUÁRIA, S.A. 338 MAZDA MOTOR DE PORTUGAL, LDA 339 BETÃO LIZ, S.A. 340 CEREALIS - PRODUTOS ALIMENTARES, S.A. 341 EURO ATLANTIC AIRWAYS - TRANSPORTES AEREOS, S.A. 342 CONSTRUÇÕES GABRIEL A.S.COUTO, S.A. 343 CAETANOBUS - FABRICAÇÃO DE CARROÇARIAS, S.A. 344 SAINT-GOBAIN MONDEGO, S.A. 345 FERNANDO OLIVEIRA - CORTIÇAS, LDA 346 GESTAMP AVEIRO - INDÚSTRIA DE ACESSÓRIOS DE AUTOMÓVEIS, S.A. 347 WURTH (PORTUGAL) - TECNICA DE MONTAGEM, LDA 348 GRUPO PINERO - AGENCIA DE VIAGENS, S.A. 349 HEMPEL (PORTUGAL), LDA 350 REFER EP - REDE FERROVIARIA NACIONAL 351 SCHENKER TRANSITARIOS, LDA 352 XEROX PORTUGAL - EQUIPAMENTOS DE ESCRITÓRIO, LDA 353 LILLY PORTUGAL - PRODUTOS FARMACÊUTICOS, LDA 354 D.C.B. - DISTRIBUIÇÃO DE BENS, UNIPESSOAL, LDA 355 ITALCO - MODA ITALIANA, LDA 356 SOMAGUE - EDIÇOR, ENGENHARIA, S.A. 357 VEDIOR PSICOEMPREGO - EMPRESA DE TRABALHO TEMPORÁRIO, LDA 358 PROFARIN - DISTRIBUIDORA DE PRODUTOS FARMACEUTICOS INDUSTRIAIS, LDA 359 SOCIEDADE COMERCIAL C.SANTOS, LDA 360 MODELO - DISTRIBUIÇÃO DE MATERIAIS DE CONSTRUÇÃO, S.A. 361 PAGINAS AMARELAS, S.A. 362 PARMALAT PORTUGAL - PRODUTOS ALIMENTARES, LDA 363 FEPI - DISTRIBUIÇÃO, S.A. 364 CIMERTEX - SOCIEDADE DE MAQUINAS E EQUIPAMENTOS, S.A. 365 PORTUCEL EMBALAGEM - EMPRESA PRODUTORA DE EMBALAGENS DE CARTÃO, S.A. 366 DALPHI-METAL PORTUGAL, S.A. 367 PANRICO - PRODUTOS ALIMENTARES, LDA 368 CIMPOR BETÃO - INDÚSTRIA DE BETÃO PRONTO, S.A. 369 SUNVIAUTO - INDÚSTRIA DE COMPONENTES AUTOMÓVEIS, S.A. 370 AVIBOM - AVÍCOLA, S.A. 371 PORTUGAL TELECOM, INOVAÇÃO, S.A. 372 EDIMPRESA - EDITORA, LDA 373 INDESIT COMPANY PORTUGAL - ELECTRODOMÉSTICOS, S.A. 374 MANUEL RODRIGUES GOUVEIA, S.A. 375 TEKA PORTUGAL, S.A. 376 CARBOPEGO - ABASTECIMENTO DE COMBUSTÍVEIS, S.A. 377 BEIERSDORF PORTUGUESA, LDA 378 COOPERATIVA AGRICOLA DE BARCELOS, C.R.L. 379 C.SANTOS - VEÍCULOS E PEÇAS, S.A. 380 SYMINGTON - VINHOS, S.A. 381 ARTENIUS PORTUGAL - INDÚSTRIA DE POLÍMEROS, S.A. 382 CABELAUTO - CABOS PARA AUTOMÓVEIS, S.A. 383 EVICAR - COMERCIO DE CAMIÕES, S.A. 384 CENTRO HOSPITALAR DO ALTO MINHO, E.P.E. 385 BRISTOL - MYERS SQUIBB FARMACEUTICA PORTUGUESA, S.A. 386 PRESSELIVRE - IMPRENSA LIVRE, S.A. 387 EUROFRUTAS - SOCIEDADE DE FRUTAS, S.A. 388 GARDONE - CONSULTADORIA E SERVIÇOS SOCIEDADE UNIPESSOAL, LDA 389 AVILUDO - INDUSTRIA E COMERCIO DE PRODUTOS ALIMENTARES, S.A. 390 LABESFAL - LABORATÓRIOS ALMIRO, S.A. 391 IBERIA - LINEAS AEREAS DE ESPANÃ, S.A. 392 LAMEIRINHO - INDÚSTRIA TÊXTIL, S.A. 393 INFOFIELD - INFORMATICA, S.A.

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394 AUTO SUECO II AUTOMOVEIS, S.A. 395 INDUSTRIAS JOMAR - MADEIRAS E DERIVADOS, S.A. 396 VILA GALÉ - SOCIEDADE DE EMPREENDIMENTOS TURÍSTICOS, S.A. 397 INTRAPLÁS - INDÚSTRIA TRANSFORMADORA DE PLÁSTICOS, S.A. 398 MERCEDES-BENZ COMERCIAL, LDA 399 GRES PANARIA PORTUGAL, S.A. 400 PERNOD RICARD PORTUGAL - DISTRIBUIÇÃO, S.A. 401 J.JUSTINO DAS NEVES, S.A. 402 ENSUL MECI - GESTÃO DE PROJECTOS DE ENGENHARIA, S.A. 403 ITAU - INSTITUTO TECNICO DE ALIMENTAÇÃO HUMANA, S.A. 404 SOCIEDADE PONTO VERDE - SOCIEDADE GESTORA DE RESÍDUOS DE EMBALAGENS, S.A. 405 EURORESINAS - INDÚSTRIAS QUÍMICAS, S.A. 406 TDO - INVESTIMENTO E GESTÃO, LDA 407 IMPRENSA NACIONAL - CASA DA MOEDA, S.A. 408 HOSPITAL DE SÃO SEBASTIÃO, E.P.E. 409 GABOR-PORTUGAL - INDÚSTRIA DE CALÇADO, LDA 410 SACOR MARÍTIMA, S.A. 411 HYDRO ALUMINIO PORTALEX, S.A. 412 INAPA PORTUGAL - DISTRIBUIÇÃO DE PAPEL, S.A. 413 VESAUTO - AUTOMÓVEIS E REPARAÇÕES, S.A. 414 HOSPITAL CUF INFANTE SANTO, S.A. 415 CAETANO & MONT'ALVERNE - DISTRIBUIÇÃO ALIMENTAR, S.A. 416 J.GOMES - SOCIEDADE DE CONSTRUÇÕES DO CAVADO, S.A. 417 AUTO-ESTRADAS DO ATLÂNTICO - CONCESSÕES RODOVIÁRIAS DE PORTUGAL, S.A. 418 VISTA ALEGRE ATLANTIS, S.A. 419 NAVARRA - EXTRUSÃO DE ALUMÍNIO, S.A. 420 AMTROL-ALFA, METALOMECÂNICA, S.A. 421 SDT - SOCIEDADE DE DISTRIBUIÇÃO DE TABACOS, LDA 422 NOSSA CIDADE - INVESTIMENTOS IMOBILIÁRIOS, S.A. 423 IBERFLORESTAL - COMERCIO E SERVIÇOS FLORESTAIS, S.A. 424 MESTRE MACO - MATERIAIS DE CONSTRUÇÃO, S.A. 425 FLEX 2000 - PRODUTOS FLEXIVEIS, S.A. 426 SANITANA - FABRICA DE SANITARIOS DE ANADIA, S.A. 427 ADECCO RECURSOS HUMANOS - EMPRESA DE TRABALHO TEMPORARIO, LDA 428 COLGATE - PALMOLIVE, UNIPESSOAL, LDA 429 LUSOPONTE - CONCESSIONARIA PARA A TRAVESSIA DO TEJO, S.A. 430 VICAIMA - INDUSTRIA DE MADEIRAS E DERIVADOS, S.A. 431 UNILFARMA - UNIÃO INTERNACIONAL DE LABORATORIOS FARMACEUTICOS, LDA 432 T.S. - THOMAZ DOS SANTOS, S.A. 433 HOSPITAL DE SANTO ANDRE, E.P.E. 434 SCHERING - PLOUGH FARMA, LDA 435 CINCA - COMPANHIA INDUSTRIAL DE CERÂMICA, S.A. 436 HELIPORTUGAL - TRABALHOS E TRANSPORTE AEREO, REPRESENTAÇÕES, IMPORTAÇÃO E

EXPORTAÇÃO, LDA 437 VIAJES IBEROJET, S.A. (SUCURSAL EM PORTUGAL) 438 POLOPIQUE - COMERCIO E INDUSTRIA DE CONFECÇÕES, S.A. 439 JAPAUTOMOTIVE - COMÉRCIO DE AUTOMÓVEIS, UNIPESSOAL, LDA 440 SCHINDLER - ASCENSORES E ESCADAS ROLANTES, S.A. 441 UNISELF - SOCIEDADE DE RESTAURANTES PÚBLICOS E PRIVADOS, S.A. 442 PT PRO, SERVIÇOS ADMINISTRATIVOS E DE GESTÃO PARTILHADOS, S.A. 443 MARTIFER ENERGIA - EQUIPAMENTOS PARA ENERGIA, S.A. 444 PROLEITE - COOPERATIVA AGRICOLA DE PRODUTORES DE LEITE, C.R.L. 445 AUGUSTO DUARTE REIS, S.A. 446 LUSOMUNDO - AUDIOVISUAIS, S.A. 447 GRUDISUL - SOCIEDADE DISTRIBUIDORA DO SUL, S.A. 448 DILOFAR - DISTRIBUIÇÃO, TRANSPORTES E LOGÍSTICA, LDA 449 BARRAQUEIRO TRANSPORTES, S.A. 450 ESEGUR - EMPRESA DE SEGURANÇA, S.A. 451 GAMOBAR - SOCIEDADE DE REPRESENTAÇÕES, S.A. 452 UNICOL - UNIÃO DE COOPERATIVAS DE LACTICINIOS TERCEIRENSE, U.C.R.L. 453 ENTREPOSTO V.H. - IMPORTAÇÃO DE AUTOMÓVEIS, S.A. 454 TRECAR - TECIDOS E REVESTIMENTOS, S.A. 455 VARZIM SOL - TURISMO, JOGO E ANIMAÇÃO, S.A. 456 MIBEPA - IMPORTAÇÃO, COMÉRCIO E EXPORTAÇÃO, LDA 457 COTESI - COMPANHIA DE TEXTEIS SINTETICOS, S.A. 458 SAKTHI PORTUGAL S.A. 459 FERRO - INDÚSTRIAS QUÍMICAS (PORTUGAL), LDA 460 C.A.M. - CAMIÕES, AUTOMÓVEIS E MOTORES, S.A.

164

461 SIMOLDES - PLÁSTICOS, S.A. 462 SEMPRE A POSTOS - PRODUTOS ALIMENTARES E UTILIDADES, LDA 463 CENTRO HOSPITALAR DO PORTO, E.P.E. 464 RUI COSTA E SOUSA & IRMÃO, S.A. 465 SAPA PORTUGAL - EXTRUSÃO E DISTRIBUIÇÃO DE ALUMÍNIO, S.A. 466 BENCOM - ARMAZENAGEM E COMÉRCIO DE COMBUSTÍVEIS, S.A. 467 ELECTROLUX, LDA 468 JERÓNIMO MARTINS - DISTRIBUIÇÃO DE PRODUTOS DE CONSUMO, LDA 469 ZON CONTEÚDOS - ACTIVIDADE DE TELEVISÃO E DE PRODUÇÃO DE CONTEÚDOS, S.A. 470 GASIN - GASES INDUSTRIAIS, S.A. 471 DAN CAKE (PORTUGAL), S.A. 472 RENAULT RETAIL GROUP BOAVISTA - COMÉRCIO E REPARAÇÃO DE VEÍCULOS, LDA 473 COOPERATIVA AGRÍCOLA DE VILA DO CONDE, C.R.L. 474 SUMA - SERVIÇOS URBANOS E MEIO AMBIENTE, S.A. 475 ACAIL - INDUSTRIA E COMERCIO DE FERRO E AÇOS, S.A. 476 QUINTA AND VINEYARD BOTTLERS - VINHOS, S.A. 477 ANTERO & CA., S.A. 478 LUSOSCUT - AUTO ESTRADAS DO GRANDE PORTO, S.A. 479 REXEL - DISTRIBUIÇÃO DE MATERIAL ELECTRICO, S.A. 480 EDIFICADORA LUZ & ALVES, LDA 481 ORGANTEX - COMÉRCIO E SERVIÇOS TÊXTEIS, S.A. 482 CONSISTE - GESTÃO DE PROJECTOS, OBRAS, TECNOLOGIAS DE INFORMAÇÃO, EQUIPAMENTOS

E SERVIÇOS, LDA 483 CENTRO DE RECICLAGEM DE PALMELA, S.A. 484 CAIMA - INDUSTRIA DE CELULOSE, S.A. 485 OLIVEDESPORTOS - PUBLICIDADE, TELEVISÃO E MEDIA, S.A. 486 SAPEC - AGRO, S.A. 487 SELECT I - SERVIÇOS, LDA 488 CENTRO HOSPITALAR DO ALTO AVE, E.P.E. 489 ACESITA - IMPORTS & EXPORTS, SOCIEDADE UNIPESSOAL, LDA 490 SAP PORTUGAL - SISTEMAS, APLICAÇÕES E PRODUTOS INFORMÁTICOS, SOCIEDADE

UNIPESSOAL, LDA 491 ALEXANDRE BARBOSA BORGES, S.A. 492 SOTÉCNICA - SOCIEDADE ELECTROTÉCNICA, S.A. 493 HOSPITAL PULIDO VALENTE, E.P.E 494 SOLVAY PORTUGAL - PRODUTOS QUIMICOS, S.A. 495 CPCIS - COMPANHIA PORTUGUESA DE COMPUTADORES, INFORMÁTICA E SISTEMAS, S.A. 496 PINTO & CRUZ, LDA 497 AGILITY TRANSITARIOS, LDA 498 MARQUES, S.A. 499 SANTOGAL H - COMERCIO E REPARAÇÃO DE VEICULOS, S.A. 500 IRMÃOS SILVAS, S.A.

To the

SNC

From

POC

ADOPTION OF THE

SISTEMA DE NORMALIZAÇÃO

CONTABILÍSTICA

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Universidade do Minho

Escola de Economia e Gestão

2009

Appendix G: Questionnaire

165

Thank you very much for your collaboration!

E-mail:_______________________________________________

Please return the questionnaire in the stamped envelope to the following address:

Lúcia Lima Rodrigues – Departamento de Gestão

Universidade do Minho

Campus de Gualtar

4710-057 Braga

Your comments on the topics covered in this questionnaire will be very useful for our

study, in particular on some specific aspect of the new rules that place greater

difficulties to your business. Please enter it here:

166

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

(SNC)(ACCOUNTING STANDARDIZATION SYSTEM)

167

SECTION 1. THE COMPANY AND ITS C ONVERSION TO SNC/IFRS

Tick one option

1.1 Which of the following categories fits your business?

Subsidiary of a national company or group

Subsidiary of an international company or group

Parent company of a national group

None of the above

1.2 Does the company already prepare its financial statements using IASB standards and in accord also with the

current nat ional account ing system ?

Yes. Since the year ___________________

No

If you responded “No” please go to question 1.6

1.3 Does the company belong to a group of companies that apply International Financial Report ing Standards

(IFRS)?

Yes. Which one? ______________________________________________________________________

No

If you responded “No” please go to question 1.6

1.4 How do you classify the influence of your parent company’s accounting policies on the accounting pract ices of

your company?

Much influence Quiet a deal of

influence Reasonable influence Little influence No influence

1.5 Who adapts individual financial statements of the company from the national accounting system to IASB

s tandards?

The company itself

The parent company

1.6 Which account ing system wil l your company adopt in 2010?

Accounting Standardization Sys tem IFRS

1.6.1 Individual financial statements

1.6.2. Consolidated financial statements

NOTE: The following questions relate to individual accounts (as opposed to consolidated accounts )

and aim to understand how your company prepared to adopt the SNC or IFRS in your indiv idual

accounts , cons is tent with your answer to quest ion 1.6.1.

The results are intended for use solely and exclusively for research purposes and will remain

conf ident ial . This questionnaire should take about 20 minutes to complete.

We thank you for your cooperation.

If you responded to either of these options, answer question 1.2 and then go

to question 1.6

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

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168

1.7 Are the financial statements of your company audited by a mult inat ional account ing f irm (Big-Four)?

Yes

No

1.8 The company used/ is us ing consult ing serv ices to conver t to SNC/ IFRS?

Yes

No

1.9 Who is respons ible for the account ing serv ices of your company?

Accounting department of the company

Internal accountant (employee of the company)

External accounting office

External accountant

Other (please indicate) _______________________________________________________________

1.10 How many SNC standards/ IFRS has the chief accountant of your company knowledge about ?

None

Fewer standards than those that relate to the company

The standards that relate to the company

More standards than those that relate to the company

All standards

No opinion

1.11 An assessment of the impact of the adoption of the SNC/IFRS has already been made or wil l be made?

Yes, the assessment has already been made

Yes, the assessment is being made

Yes, the assessment will start at (please indicate when) ______________________________________

There will be no assessment

I do not know

Tick one or m ore option

1.12 What has been (or will be) included in assess ing the impact of the SNC/IFRS on the company?

Identifying the most problematic issues for the company

Changes in accounting policies and their impact on financial statement amounts

Impact on ratio values and performance indicators

Changes in the Information Technology (IT) system

Changes in the management accounting system (if the company does not have a management accounting system

please put a X here ___)

Changes in the internal control system and the documentation produced

Staff training needs

Costs involved

Reactions of main business partners

Other (specify please) _________________________________________________________________________

If you responded to either of these options please go to question 1.13

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

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169

Tick one option

1.13 Has the company already begun to convert to SNC/IFRS ?

Yes, it started in _______________

No, there are plans to initiate in __________________

If you responded “No” p lease go to question 1.15

Tick the operations that the com pany has a l ready m ade , is m aking, or wi l l m ake unti l Decem ber 2009

1.14 To what ex tent has the company s tarted the convers ion process?

1.14.1 Adopt ion of the SNC/IFRS for the f irs t t ime

Identified the assets and liabilities that are not recognized in the national accounting system but are

recognized in the SNC/IAS

Identified the assets and liabilities that are recognized in the national accounting system but are not

recognized in the SNC/IAS

Identified changes in the classification of assets and liabilities

Identified differences in the measurement of assets and liabilities

Other (specify please) _____________________________________________________________________________

1.14.2 Convers ion of the informat ion management system

Changed the accounts code in the IT system

Changed the financial statements templates generated by the IT system

Prepared the information system to provide detailed information to the notes to the financial statements

Prepared the IT system to include the possibility of a change in the life, methods of depreciation and residual

value of the assets

Prepared the IT system to adopt a components approach to tangible fixed assets

Prepared the information system to provide projections of the cash flows necessary for the calculation of

impairment losses

Change the management accounting system (if the company does not have a management accounting system please

put a X here ___)

Other (specify please) ____________________________________________________________________________

1.14.3 Other convers ion procedures

Trained members of the financial and/or accounting department

Identified changes in the internal control system and in internal documentation

Identified the Cash-flow Generation Units

Identified the assets and liabilities that will be measured at fair value (if there are any please put a X here __ )

Identified the methods for assessing fair value

Other (specify please) __________________________________________________________________________

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

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170

Tick one or m ore options

1.15 Who makes the decision about which assessment and evaluation procedures your company has to make to

change to the SNC/IFRS ?

Chief executive officer/manager

Chief financial officer

Chief accountant

Manager of the IT system

Parent company (if appropriate)

Other (specify please) _____________________________________________________________________________

1.16 To what extent has the adoption of SNC/IFRS changed the following elements of the financial statements of

the company?

Significant increase Slight increase No change Slight dec rease Significant decrease No opinion

Assets

Liabilities

Equity

Net Profit

Tick one option

1.17 Has the link between financial accounting and management accounting improved with the adopt ion of the

SNC/IFRS?

Yes

No opinion

No

The company has no management accounting system

1.18 To what extent are the accounting options chosen by your company influenced by the accounting practices of

other companies, espec ial ly in the same industry?

Very

pos it ive

influence*

Some

pos it ive

influence

Some

negative

influence**

Very

negative

influence

Are observed

but have no

influence

Are not

observed

Measurement practices

Recognition practices

Disclosure practices

Preparedness and conversion

practices to the SNC/IFRS

* Influences the company to chose the same accounting prac tice

** Influences the company to chose a different accounting prac tice

1.19 Compared to the national accounting system, to what extent has SNC/IFRS enabled your company a greater

or lesser degree of autonomy in organizat ional dec is ions ?

Much more

autonomy

Slightly more

autonomy The same

Slightly less

autonomy

Much less

autonomy No opinion

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

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171

SECTION 2. THE COMPANY, SNC/IFRS AND THE SURROUNDING ENVIRONMENT

Tick one option

2.1 If the decision to abandon the national accounting system was optional, would the company s t i l l adopt the

SNC/IFRS?

Yes, because (please indicate why) ______________________________________________________________

No

No opinion

2.2 What is the main effect on the company’s economic and f inanc ial rat ios result ing f rom the adopt ion?

- Financial ratios

(solvency/financial autonomy)

Negative

Positive

Neutral

Still to analyze the effect

Not applicable

- Prof itabil i ty rat ios

Negative

Positive

Neutral

Still to analyze the effect

Tick one or m ore options

2.3 What are the company's expectations regarding users ’ reaction to the preparation of its financial information in

accord with SNC/IFRS?

Very

negative Negative Neutral Pos it ive

Very

pos it ive

Not

applicable No opinion

Banks

National investors

International investors

National customers

International customers

National suppliers

International suppliers

Employees

Partner company

Tick one option

2.4 Has the adoption of SNC/IFRS influenced the strategic decisions of the company (e.g. , new bus iness

segments , new forms of f inanc ing)?

Yes No No opinion

2.5 Has the adopt ion of SNC/IFRS encouraged your company to improve the Annual Report?

Yes No Yet to decide No opinion

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172

2.6 Has the adoption of SNC/IFRS encouraged your company to change its internal organizat ion?

Yes No No opinion

2.7 To what extent has the imposition in 2010 of the requirement to adopt the SNC/IFRS been t imely for your

company?

Extremely

untimely

Quite

untimely Indifferent

Quite

timely

Extremely

timely

2.8. Article 14º of Decree-Law 158/2009 (13 July) provides that entities subject to the SNC and who: 1) do not

apply its content, 2) present financial statements that distort its reality, or 3) do not have any of the f inanc ial

s tatements required, are subject to a fine of between €500 and €15,000. If the noncompliance arises by way of

negligence, the f ines are reduced by half .

2.8.1 How do you evaluate the value of these fines?

Very high Slightly high Appropriate Slightly low Very low No opinion

2.8.2 How ef fec t ive do you expect the enforcement sys tem of the SNC/IFRS to be?

Very effective Quite effective Reasonably

effective Little effective Ineffective No opinion

Circle your chosen response

2.9 Indicate your level of agreement/disagreement with the following sentences:

In an internationalization context, adoption of IFRS

can provide more business opportunities to a

company

Totally

agree Agree Indifferent Disagree

Totally

disagree

No

opinion

The level of compliance with the SNC/IFRS shown

in the financial statements can increase the

prestige of the company

Totally

agree Agree Indifferent Disagree

Totally

disagree

No

opinion

The quality of the financial statements increases

significantly with the adoption of the SNC/IFRS

Totally

agree Agree Indifferent Disagree

Totally

disagree

No

opinion

The increased international acceptance of IFRS

that has occurred in recent years has made the

widespread adoption of IFRS by businesses of

al l kinds inevitable

Totally

agree Agree Indifferent Disagree

Totally

disagree

No

opinion

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

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173

Tick one option

2.10 In the course of the normal activities of the company, how do you evaluate its ability to predict the fol lowing:

None Small Reasonable High

Very

high

Not

applicable

No

opinion

Interest rates

Possibility of obtaining funding

Market share

Emergence of significant competition

Market prices

Regulation of the activity

Tax regulation

Political environment of foreign countries where

the company operates

Accounting standards

Personnel accidents

Technology used in business

Technical failures in the company

Relevant human errors

2.11 What influence does the company’s industry have on the decision making of your company regarding the

fol lowing items?

Very

impor tant

Quite

impor tant

Reasonably

impor tant

O f minor

importance

Not

important

Not

applicable

No

opinion

Sales prices

Development of new

products

Business practices

Choice of markets to

operate quite

Environmental practices

Technologies used

Wage level

2.12 How would you characterize the following aspects of your business environment, in terms of homogeneity?

Ex tremely

homogeneous

Strongly

homogeneous

Moderately

homogeneous

A lit t le

homogeneous

Not

homogeneous

Not

applicable

No

opinion

Customers

Competition

Shareholders

Creditors

Market

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

(SNC)(ACCOUNTING STANDARDIZATION SYSTEM)

174

2.13 How would you characterize the industry in which your company operates?

Extremely well

organized

Very strongly

organized

Moderately well

organized

A little bit

organized

Not

organized No opinion

2.14 How would you characterize the employees of the company in dealing with change?

Ex tremely

receptive

Strongly

receptive

Moderately

receptive

A lit t le

receptive

Not

receptive

Not

applicable

No

opinion

General management

Major divisions management

Departments management

Responsibility centers

management

Financial/accounting

department

Employees in general

Elementary tasks employees

2.15 How do you describe the capac ity of your company to:

None Slight Moderate High Very high No opinion

Analyze the environment and identify new

trends

Involve staff in the formulation of new projects

Develop employees' sense of shared

responsibility for the company's future

Turn projects into reality

Identify the forces that facilitate or hinder the

implementation of projects

Adapt organizational structure to new

situations

ADOPTION OF THE SISTEMA DE NORMALIZAÇÃO CONTABILÍSTICA

(SNC)(ACCOUNTING STANDARDIZATION SYSTEM)

175

3. Company profile and respondent profile

3.1 Industry: _____________________________________________ CAE: ____________________________

At 31.12.2007 3.2 Number of employees: __________________________________________

3.3 Number of subsidiaries located abroad: ______________________________

3.4 Number of countries the company exports to: _____________________________

3.5 Total turnover in 2007: _________________________________________________________________

3.6 Turnover with foreign markets in 2007: _____________________________________________

3.7 Total purchases in 2007: ________________________________________________________________

3.8 Purchases in foreign markets in 2007: _________________________________________________

Tick one option

3.9 Does your company belong to any industry associations?

No Yes. How many? ________________

3.10 Does your company have international investors in its capital?

No Yes. Which percentage? _________

3.11 Does your company hold share capital investments from companies located abroad?

No Yes. What is the percentage of the total share capital held? ________

3.12 Is your company a limited company?

No Yes

If you responded “No” please go to question 3.15

3.13 Does your company have shares listed on a stock market?

No No. But the parent company does. Yes

3.14 What percentage of capital is held by the five largest shareholders of the company?

0-20% 20%-40% 40%-60% 60%-80% 80%-100% Please go to question 3.16

3.15 Please indicate:

Number of shareholders ________ Number of shareholders-managers ________ Number of managers ________

3.16 In respect of social and environment responsibility, does your company disclose:

A sustainability report Information in a specific section of the Annual Report

Information throughout the Annual Report Does not disclose specific information

3.17 This questionnaire was completed by:

CFO Chief accountant Other (specify the function please)_________________________

CFO Chief accountant Other

Age:

Academic degree:

Professional associations

membership:

Date of the completion of the questionnaire: _________________________________________________________________________

176

177

Escola de Economia e Gestão

Campus de Gualtar 4710-057 Braga – P

Dear Sirs,

My name is Marta Guerreiro and I am completing a study on the Adoption of the New

Accounting System by Portuguese Companies. This study is a PhD study in Accounting, at the

School of Economics and Management of University of Minho. My supervisors are Professor Lúcia

Rodrigues and Professor Russell Craig.

My research analyses the process of conversion of Portuguese companies to the new

Accounting System. It requires information that can be obtained only through a questionnaire, with

the collaboration of companies.

The questionnaire attached is composed of two sections: Section 1, which focuses on

accounting issues; and Section 2, which focuses on financial aspects. The data are intended for

research purposes and statistical analysis only. Your confidentiality is absolutely guaranteed. Each

questionnaire contains an identification number for purposes of correspondence. Information that

identifies companies surveyed will never be disclosed under any circumstances.

The questionnaire is being sent to the 500 largest Portuguese companies. Findings of the

study will appear in a report that will be sent to responding companies.

The success of this study depends on your valuable assistance, both in completing the

questionnaire (which will take approximately 20 minutes), and in returning it by 31 October, 2009.

A stamped return addressed envelope is attached.

I will be available to provide any clarifications, by e-mail: mguerreiro@estg.ipvc.pt, or by

phone: 9XXXXXXXX.

Braga, September 15, 2009

Yours sincerely,

Marta Guerreiro Lúcia Lima Rodrigues (PhD Student) (PhD Supervisor)

Appendix H: Cover letter

178

179

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